The Bearish Case For EUR/USD Ahead Of ECB And US GDP

The EUR/USD is the world’s largest active currency pair. This is because of the size of the European Union and the US economies and the volumes of trade between the two regions. This week, this pair will likely be one of the most volatile pairs because of the importance of the data we expect.

(Click on image to enlarge)

On Thursday, the European Central Bank (ECB) will hold its meeting. This meeting will result to the interest rate decision. As expected, the ECB is expected to leave interest rates unchanged. So, the rate decision will not be the major market mover. Instead, traders will focus on the accompanying statement from the ECB and the press conference that will come afterwards. The two will give an indication to traders on whether the bank will exit the quantitative easing program in December as promised. They will also be paying close attention to the statement on interest rates.

Then, on Friday, the United States will release the highly-anticipated first reading of the second quarter GDP. Traders and policymakers are waiting for this number as it will be the first indicator of the impacts of the tax cuts. We expect that the economy grew by 4.1%, which will be a big jump from first quarter’s 2.1%. Analysts believe that the economy will then start cooling as the impacts of the tax cuts reduce and the impacts of the trade war come in. Already, companies have started issuing warnings on the tariffs to their bottom lines.

In addition to this, all eyes will be on the Fed who could decide to respond to the criticism from the US president about the rate hikes. They could as well remain silent and move on because they are not answerable to the president.

In recent days, the EUR/USD pair has moved from a low of 1.1576 and has reached 1.1727. The surge has been because of the Trump comments on the Fed. This price is slightly below the upper Bollinger Band and is near to the important resistance level of 1.1790. This week, the pair could drop because traders have overtraded the statements by the US president. Remember, the president does not influence the monetary policy of the United States. Therefore, the pair could test the middle band of the Bollinger Bands which is at 1.1665.