EUR/USD to Break on ECB, Key Levels to Watch

by Kathy Lien

EUR/USD to Break on ECB, Key Levels to Watch

The European Central Bank’s monetary policy announcement is the most important event risk on the calendar next week. While no immediate changes in monetary policy is expected, ECB President Draghi is expected to remind investors that inflation is low, the economy is weak and easier monetary policy may be needed. Consumer spending has been particularly soft, manufacturing and trade activity took a hit after Brexit and most importantly, inflation remains well below target with year over year core CPI growth slipping to 0.8% from 0.9% in August. Aside from the decision on rates and Draghi’s press conference, the central bank will also release its economic projections and if changes are made, they will likely be euro negative given the deterioration in manufacturing and inflation data over the past week.

Like many of the major currency pairs, EUR/USD went on a rollercoaster ride post NFPs but the currency pair ended the week below the 100 and 20-day moving averages which puts it on track for a move down to 1.1125, where we have the 50 and 200-day SMAs. If this support is broken and EUR/USD also breaches 1.11, 1.1050 will be next. If 1.1125 holds, EUR/USD could drift up to 1.1215 with the “breakout” of these moving averages determined the level of ECB dovishness.

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