It has been a quiet session overall but the euro has steadily inched lower in the European morning amid continued focus that the ECB will be delivering a stimulus package at tomorrow's monetary policy meeting.
Currently, price is looking towards the 200-hour MA (blue line) @ 1.1014 after sellers managed a break of the 100-hour MA (red line) earlier today. If they can break below the former, that puts them back in near-term control ahead of the ECB tomorrow.
The price action above suggests that we could see some short covering (sell the rumour, buy the fact) in the event the ECB delivers a more "expected" outcome. That said, any immediate reaction to the decision will depend on the magnitude of rate cuts (10 or 20 bps) and any imminent QE announcement as well.
As it stands, markets are on the fence on the former while there is significant expectations that the central bank should deliver something on QE tomorrow.
I reckon failure to announce a restart of QE may see the euro rise initially due to a relief rally and further short covering but the material impact on what that means for the euro will take more time to play out.
The lack of a strong stimulus package may not necessarily be a good thing as it will do little to bolster economic confidence and inflation expectations. As mentioned yesterday, it's essentially a "go big or go home" play for the ECB at this stage.
If they aren't going to "go big", markets may eventually view the decision tomorrow as a disappointment and the euro's relief rally may end on a more sour note in the big picture.