EURGBP Rebounds
The EUR to USD (EURUSD) is holding steady ahead of the European Central Bank (ECB) decision. The pair is also steady as major European economies implement partial lockdowns as the number of coronavirus cases jump.
The ECB, which started its monetary policy meeting yesterday, will deliver its interest rate decision at 12:45 (GMT) later today. This decision comes at a time when the economic situation in Europe has changed materially.
Throughout Europe, the second wave of the coronavirus is spreading at an unprecedented level. The most affected countries are France, Germany, Spain and Portugal. As a result, governments have been forced to make tough choices.
Yesterday, France and Germany announced partial lockdowns that will see some of the important businesses closed through end of the month. Other countries are also considering such measures.
At the same time, inflation remains significantly low, in a situation that analysts have christened lowflation. Therefore, analysts expect that Christine Lagarde will not change monetary policy framework in todays meeting. Instead, she will leave interest rates and the 1.35 trillion-euro rescue package intact. Instead, she will downgrade the economic forecast and reiterate her willingness to act.
The EUR to USD will also react to other important economic numbers from Europe. At 08:55, Germany will release the October employment numbers. Analysts expect the data will show that the unemployment rate remained at 6.3%. Later on, the statistics office will release the country’s inflation data. The European Commission will also release the business and consumer confidence numbers. In a statement, analysts at UOB said:
“From here, there is room for EUR to test the support at 1.1710 first before a stronger rebound can be expected. For today, the next support at 1.1685 is unlikely to come under threat. Resistance is at 1.1780 but only a break of 1.1805 would indicate the current downward pressure has eased.”
On the hourly chart, we see that the EUR to USD pair moved relatively higher in overnight trading. The price is now approaching the 61.8% Fibonacci retracement level. It is also along the 25-day exponential moving averages and below the 50-day EMA. Notably, after yesterday’s jump, the price has formed a bullish pennant pattern that is shown in red.
Therefore, unlike what UOB analysts believe, I suspect that the pair will break-out and test the next resistance at 1.1780. That is along the 50% retracement level. In this case, the support will be 1.1730.
