The Bank of Canada yesterday unexpectedly announced a slowdown in bond purchases due to the improved economic outlook. Bank executives on Wednesday left the key interest rate unchanged at 0.25% while saying that the key rate hike could happen faster than previously thought.
The absolute focus of traders' attention today is the ECB meeting. Considering yesterday's statements by the Bank of Canada, which caused a sharp increase in volatility in the financial market, market participants will closely follow the ECB meeting today. Probably, following the results of this meeting, the key interest rate of the ECB will remain at the same level of 0%. The ECB's rate on deposits for commercial banks is also likely to remain at -0.5%. It is also unlikely that the ECB will make important statements following today's meeting. Most likely, the ECB leaders will prefer to take a wait-and-see attitude, at least until the publication in June of the quarterly report on financial conditions and the inflation outlook.
Now inflation in the Eurozone is stubbornly holding around 1%, and the new forecasts of the ECB on rates and the QE program can be seen as a signal of the inclination to further soften the policy. After Brexit, trade conflicts, factors of political instability in Europe, as well as the growing coronavirus pandemic, due to which European countries are forced to introduce new quarantine restrictions that negatively affect economic activity, are the main threats to the European economy.
And yet there is a possibility that at this meeting, the ECB will announce a new program to stimulate the economy, which will put pressure on the euro.
The ECB's decision on rates will be published at 11:45 (GMT), and at 12:30 the ECB press conference will begin, which will be of primary interest to market participants, and during which a surge in volatility is possible not only in euro quotes but also in the entire financial market if the ECB leaders make unexpected statements. ECB leaders will assess the current economic situation in the Eurozone and comment on the ECB's rate decision. In previous years, based on the results of some ECB meetings and subsequent press conferences, the euro exchange rate changed by 3%-5% in a short time. Most likely, following the meeting, ECB President Christine Lagarde will again signal the bank's inclination to a soft policy. The soft tone of her statements will have a negative impact on the euro. And vice versa, the tough tone of the ECB leadership's statement on the central bank's monetary policy will strengthen the euro.
However, a minor adjustment to the ECB's asset purchases program will probably not have a strong impact on the euro and the EUR/USD pair, the direction of which will depend on other factors, and above all on the dynamics of the dollar. In the meantime, the dollar is showing a tendency to further weakening amid continuing decline in the yield of US government bonds.
Immediately after the publication of the ECB's decision on rates, the US Department of Labor will publish (at 12:30 GMT) weekly data on the labor market. Initial jobless claims are expected to rise to 617,000 in the reporting week from 576,000 earlier.
The data suggests that the full recovery of the American labor market, badly hit by the coronavirus pandemic, is still a long way off. According to some economists, the labor market needs to recover by another 25% to reach normal levels. The worsening epidemiological situation in many regions of the world due to the increase in the number of cases of COVID-19 casts doubt on previous forecasts regarding the pace of global economic recovery. In these conditions, the Fed, most likely, will not soon begin to tighten its monetary policy.
All of these are negative factors for the USD. Considering the greatest influence of the policy of the American central bank (in comparison with other major world central banks) and the dynamics of the dollar on the world financial market, the EUR/USD pair is most likely to remain inclined to further growth, at least until the Fed meeting on April 27-28.
According to many economists, the dollar's sustained growth, including against the euro, is unlikely as long as US yields remain subdued and the European economic outlook is improving as a result of accelerated vaccination rates, while the Fed's soft policy will put pressure on the dollar. The dollar also reacts less and less with growth to strong data on the US economy, since many positive data have already been taken into account in quotes. Combined with the Fed's soft policy amid rising inflation, this will put downward pressure on the dollar.
Technical Analysis and Trading Recommendations:
At the time of publication of this article, the EUR/USD pair is trading near the 1.2025 mark, remaining in the bullish market zone and maintaining positive dynamics above the key support levels 1.1845 (EMA200 on the daily chart), 1.1915 (EMA144 on the daily chart).
EUR/USD is also above the important short-term support levels 1.1983 (EMA200 on the 1-hour chart), 1.1933 (EMA200 on the 4-hour chart).
In case of a confirmed breakdown of the important resistance level 1.2065 (EMA200 on the monthly chart and the upper border of the descending channel on the daily chart), EUR/USD will continue to grow towards resistance levels 1.2180 (50% Fibonacci level upward correction in the wave of the pair's decline from 1.3870, which began in May 2014), 1.2340 (this year's highs). A more distant target is located at the resistance level 1.2580 (Fibonacci level of 61.8% and highs of 2018).
In an alternative scenario, and after the breakdown of the support level 1.1950 (EMA50 on the daily chart), EUR/USD will resume its decline into the descending channel on the daily chart. Its lower border is near 1.1600, 1.1560.
The first signal for the implementation of this scenario will be a breakdown of the short-term support level of 1.983 (EMA200 on the 1-hour chart).
The breakdown of the support levels 1.1845 (EMA200 on the daily chart), 1.1780 (38.2% Fibonacci level) will confirm the alternative scenario, and the breakdown of the support level 1.1560 (EMA200 and EMA144 on the weekly chart) will increase the risks of resuming the long-term bearish trend in EUR/USD.
Support levels: 1.1983, 1.1950, 1.1933, 1.1915, 1.1845, 1.1780, 1.1710, 1.1600, 1.1560
Resistance levels: 1.2065, 1.2100, 1.2180, 1.2270, 1.2340, 1.2555, 1.2580, 1.2600
Sell Stop 1.1990. Stop-Loss 1.2085. Take-Profit 1.1950, 1.1933, 1.1915, 1.1845, 1.1780, 1.1710, 1.1600, 1.1560
Buy Stop 1.2085. Stop-Loss 1.1990. Take-Profit 1.2100, 1.2180, 1.2270, 1.2340, 1.2555, 1.2580, 1.2600