July 23, 2021 13:28:06

The ECB’s much-hyped summer rendez-vous has passed with the Governing Council changing its forward guidance due to the new strategy. The bank is becoming even more dovish with interest rates remaining low for even longer as the bar to hiking rates has been raised. This is confirmed by stories on the wires today saying that policymakers do not expect to decide on the future of their emergency bond buying programme (PEPP) in September. In fact, some are speculating that we will see an extension of this beyond March 2022.

Markets were braced for a dovish stance which explains in part the initial muted reaction by the euro. But the single currency eventually declined amid disappointing US jobless claims and below-consensus housing data that highlighted market fears about growth topping out. More recently, better than expected Eurozone and German PMI data out this morning has given EUR/USD a small bid.

Fed tightening speculation, which lies in stark contrast to the low for longer ECB, may ramp up into next week’s FOMC meeting. This announcement will likely determine the EUR’s performance in the next week.

EUR/USD holding range…for now

Technically, bearish momentum has petered out on shorter timeframes with price action now congested above the 1.1750 support zone. But the world’s most traded pair has just confirmed a “death cross” of its 50-day and 200-day moving average just above 1.20. This pattern indicates the potential for a major selloff with targets to the downside firstly at the year-to-date low at 1.1704. Sellers will then aim for last Autumn’s lows around 1.16 if we carry on south.

Any rally will need to break above yesterday’s high at 1.1830 to indicate that the current mild downward pressure has eased, with a longer-term exponential moving average offering further resistance at 1.1855. We note there is also some technical divergence with new lows in spot for this move not taking the RSI lower.