EUR/USD: Bearish Price Action Ahead of the ECB Strategy Review

Summary:

EUR/USd trades with a weak tone ahead of the ECB strategy review expected later in the trading day. A move below April lows is bearish.

The euro pairs trade with a weak tone ahead of the ECB Strategy Review to be released later in the trading day. The EUR/USD, in particular, is in danger of forming a double top pattern at the 1.22 area. If confirmed by the future price action, we should not be surprised to see a drop to 1.12.

Yesterday’s FOMC Minutes did not mention the tapering of the asset purchases by the Fed, as some market participants expected. Instead, they reiterated the Fed’s willingness to remain accommodative. Therefore, the market shifts its attention to the Jackson Hole Symposium scheduled in August.

For the euro pairs, the main event of the week, and perhaps the summer, is scheduled later today. The ECB is about to publish its strategy review, and rumors have it that the central bank is willing to shift its inflation-targeting mandate to allow inflation to overshoot its target, just as the Fed did in August last year.

Such a move would be to the common currency’s detriment. It means that the Governing Council is afraid of not being able to fill its mandate in the years to come, and an increase in inflation expectations would make it easier.

EUR/USD Technical Analysis

The technical picture shows a possible double top pattern at the 1.22 area. Remember that for a double top it is not important the level, but the area where the market fails. In this case, the pair failed around 1.22 and a move below April’s lows is bearish for the pair.

Bears may want to stay on the short side with a stop at 1.20 and a take-profit level below 1.15. Alternatively, conservative traders may want to wait for the EUR/USD pair to break blow April’s lows before going short with a stop at the 1.19 and a similar target.