Despite the euro rising on Wednesday morning as investors started to focus on the European Central Bank’s policy meeting next week, the single currency is on a long bearish roll. Specifically, the EUR/USD has fallen to a ten month low against the dollar last Tuesday and it could still be headed towards yearly lows.
Market players said the euro got a boost on Wednesday morning, after sources reported that the ECB could conclude its next policy meeting this month with a public announcement on when its quantitative easing program would end. Expectations for the ECB to normalize its monetary policy had waned in recent months as European economic data was sluggish and political developments in Italy took center stage.
Recent building speculation around the ECB’s policy path is now working to counterbalance the bearishness but is this the beginning of a strong uptrend or is it just a temporary bullish note inspired by unfounded forecasts? It should be noted that on his part, ECB President Draghi didn’t give any insight ahead of the next official meeting which is considered the ‘quarterly’ event with updates on forecasts and an expected change from passive dove to long road into normalization.
With the euro now well into its second consecutive month of losses against the dollar, the question that plagues many investors is will ECB finally give the markets the answer it needs? And perhaps more importantly, what if the ECB continues on its elusive dovish promises? How low can the euro really trade?
As expectations of a blockbuster year for Eurozone growth have been somewhat unfounded, the market will set all eyes on the ECB from now on, while politics in Italy and Spain will play a secondary role. The next ECB meeting is scheduled for Thursday, June 14 at 11:45 GMT and any definite answers as to the end of its quantitative easing program will give some much needed support to the euro.
But what happens if it doesn’t? Unfortunately, that would be extremely bad news for the euro which is running out of bullish cards. If the ECB continues on its dovish rhetoric, the EUR could tumble, hard. The single-currency looks set to weaken further if it breaks below it’s last support level of 1.15539USD.
*Please note that this article is not meant to be construed as investment advice or suggestion of an investment strategy with respect to any financial instrument.
Sources: investing, dailyfx, MarketWatcg