Euro Nervous Ahead Of ECB Decision

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Following a slightly positive open, European stock markets turned lower on Wednesday, with Wall Street indexes holding in red in early deals amid resurgent worries about the economic growth. Investors were spooked by the news that the World Bank cut its global GDP forecast to 2.9%, warning of a period of elevated inflation. Similarly, the OECD cuts the global growth outlook for this year, albeit pointing at limited risks of 1970s-style stagflation.

The US dollar regained the bullish bias today but once again encountered resistance in the 102.80 area that prevented the greenback from challenging the 103.00 figure. The USD index retreated below 102.50 and was last seen changing hands just above the flat-line, suggesting further consolidation shouldn’t be ruled out in the near term. As such, the 102.80-102.85 zone now represents decent resistance while on the downside, the outlook for the index should stay constructive as long as the 101.30 zone holds the bearish pressure.

As the dollar retreated from the mentioned barrier, the EUR/USD pair rallied back above the 1.0700 figure, targeting this week’s highs around 1.0750. However, the common currency is unlikely to make a decisive breakout in the near term as traders could stay cautious ahead of the ECB meeting due on Thursday.

The central bank is widely expected to refrain from acting on rates at the upcoming meeting. At the same time, Lagarde will likely announce the start of policy normalization as early as July. The outlook for the shared currency would change depending on the outcome of the meeting. Should the bank express a less hawkish tone than expected, euro bulls will be disappointed. In this scenario, EUR/USD may easily derail the 20-DMA, today at 1,0635, for the first time since May 19.