EUR/USD sticks around the 1.1200 handle ahead of European trading
The ECB gave the euro a nudge lower yesterday after it surprised markets with a dovish tilt by announcing a change to its rate/forward guidance and also the announcement of TLTROs. While the move itself is dovish, it's at least the least dovish the central bank could be for now. But in the context of expectations for yesterday's meeting, it was the most dovish the central bank could've afforded to communicate to markets.
As it stands, yesterday's rate/forward guidance shift doesn't do much to alter pricing of ECB rate hikes by markets. It is still currently expected some time around 2H 2020. Meanwhile, TLTROs announced are set to last for only two years; and that's the best-case scenario if you're trying to look on the bright side and in any case, that will at least lend support to Italian bonds and banking stocks down the road if anything else.
However, for the euro, it's a different story as the single currency falls to its lowest levels since June 2017 against the dollar. EUR/USD is still holding at the lows but remains supported by the 61.8 retracement level @ 1.1187 for now.
Looking at the weekly chart offers better clarity on where EUR/USD is headed in the bigger picture. While price is leaning on support from the 1.1187 level, it looks to be making a firm break below the 200-week MA (blue line) and that will offer sellers more conviction to drive price lower from here.
That said, there is key support from the downwards trendline shown above - currently at 1.1118 - and that will be the defining level in determining a further break lower for EUR/USD in my view. If that trendline support breaks, it would be a quick run towards 1.1000 and there won't be much stopping the pair from retesting the lows seen at the end of December 2016/early January of 2017.
But what's next for EUR/USD now?
The US jobs report will be the next key risk event to look out for but given the circumstances, I would expect further downside pressure to follow for EUR/USD, all else being equal. The thing about the ECB's dovish tilt yesterday is that it basically takes away all the potential upside that the euro could muster in the event of a surprise upturn in economic data.
Hence, I would find it difficult for the single currency to sustain any rallies considering that the global growth backdrop remains a cause of concern for markets and there are still lingering political headwinds in the Eurozone region.
