EUR/USD is a little lower on the day but nothing too significant for now
The pair is a tad lower on the day around 1.1760 levels, but sellers are not really pushing for heavy downside pressure below 1.1800 for the time being.
The ECB rhetoric has been part and parcel of what is weighing on the euro over the past week, as we see a drop from 1.2000 to current levels – even breaking below a trendline support from the start of August trading.
The recent price action is also invalidating the higher highs, higher lows pattern in the pair since last month but buyers haven’t lost all momentum yet with the 21 August low @ 1.1754 still intact – for now at least.
That alongside the 1.1700 handle remains key levels to watch in the pair as we start to focus more on the ECB policy meeting in the day ahead.
The ECB had already expressed concerns on the rising euro in the past week or so and now all eyes will be on Lagarde and what kind of message will she deliver.
I reckon the market will surely expect some form of jawboning but if she doesn’t build on what has already been said, then perhaps the scope for euro downside may be more limited as we look towards the latter stages of the week.
Against the dollar, keeping above 1.1700 will be key in that regard.
But the dollar side of the equation is also dependent on the risk mood, so that may complicate things. So, perhaps there is more upside potential for the euro against the pound and commodity currencies if Lagarde goes soft and risk continues to fumble.
On the flip side, if Lagarde sends a stern message to the market (which I doubt she would), that may lead to more euro longs jumping ship for the time being.
In such an event, be wary of a break under 1.1700 as that could lead to accelerated selling in the single currency; and also further dollar strength.