EURUSD Gives Up Gains as FX Traders Brace for an ECB Rate Cut

Summary:
• EURUSD is under selling pressure today as risk aversion eased and on profit-taking ahead of the ECB rate decision in which a rate cut is expected.

EURUSD is under selling pressure today as risk aversion eased and on profit-taking ahead of the ECB rate decision. The currency pair is down over 130 pips from yesterday’s high, trading at 1.1363.

On Thursday, all eyes will be on ECB President Lagarde when she announces the central bank’s rate statement. The consensus is for the ECB to cut rates by 10 basis points to -0.10% and to increase its targeted long-term refinancing operation program (TLTRO) or cheap loans to banks.

This follows after she said that the central bank would take “appropriate and targeted measures” to stimulate growth. Additionally, the multiple central banks have taken steps to loosen monetary policy amid the coronavirus outbreak. The Federal Reserve, BOC, and the RBA have cut their rates. It is expected that the ECB would also follow suit especially since the euro zone’s third-largest economy, Italy, has one of the highest cases globally.

If the ECB announces a larger rate cut or a higher TLTRO package, weakness in EURUSD could be exacerbated. On the other hand, if Lagarde meets expectations or if the ECB stands pat, we could see EURUSD rally.

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EURUSD Outlook

The hourly time frame shows that EURUSD has given up all of its gains from yesterday. It’s worth pointing out that the currency pair has room to trade lower and still maintain its uptrend.

By connecting the lows of February 26, February 28, March 4, and March 5, trend line support at 1.1275 becomes apparent. This price also coincides with other key indicators that may provide EURUSD with support. For one, there is the 100 SMA. Secondly, this price level coincides with the area between the 50% and 61.8% Fib levels when you draw from the low of March 4 to the high of March 9. Reversal candlesticks around this price could mean that EURUSD will soon trade higher towards the 1.1500 handle.

But be wary of adopting a bullish bias for the currency pair. The weekly chart shows that the 100 SMA and 200 SMA have merged and is being tested by EURUSD. A close below the SMAs for this week could mean that a sell-off is in store for the currency pair. It will not be surprising to see it drop to its previous resistance at 1.1170.