EUR/USD flirts with the 1.11 level after dovish ECB message overnight
Sellers are looking to chew through bids at the figure level
The euro moved lower in overnight trading after ECB governing council member Olli Rehn suggested that it is better for the central bank to overshoot with stimulus at its September monetary policy meeting decision.
That saw EUR/USD fall quickly in a move to test the 1.1100 handle and price has since continued to flirt with the figure level as we approach European trading today.
Of note, there are also large expiries lined-up so that may help to add some support to bids around the 1.1100 level.
For now, sellers remain in near-term control but any further downside move will only accelerate upon a break below the 1.1100 level and preferably the 1.1070-80 swing region.
I would argue that the focus in markets will slowly shift towards central banks again in the coming weeks, especially with Jackson Hole set to come about next week.
As such, I reckon the euro will find little reprieve given mounting expectations for the ECB to introduce heavy stimulus next month. In the event of EUR/USD, that would play into any rallies being sold closer to the key hourly moving averages as sellers have now established some relative control in the pair in the near-term.
With markets also already having fully priced in a Fed rate cut (with ~42% odds of a 50 bps rate cut even), it's hard to imagine much further downside for the dollar as long as the Fed remains vague about the situation.
If anything else, any hints at Jackson Hole next week that they may not be deliberating such aggressive easing could see a significant repricing in market expectations as well.