ECB On Watch

EURUSD is on watch today as traders brace for the July ECB meeting. The bank is widely expected to hold rates unchanged, in in with recent signalling, but traders will be keen to see whether it retains a hawkish tone its outlook and guidance. The re-escalation of the Iran war as well as the surge in European gas prices (rising above oil prices), mean that inflation risks are still very much a key issue for the bank over the coming months. As such, and in a bid to avoid the de-anchoring of inflation expectations, the bank should deliver a broadly hawkish message which keeps traders poised for a September hike. Worth noting that some players are even talking of a room for a surprise hike at today’s meeting.

Market Reaction

In terms of market reaction, a hawkish hold from the ECB today should keep EURUSD mildly bid though an upside break looks hard to achieve against the current spike in oil prices and accompanying USD strength. If the message is more overtly hawkish this could help firm EUR up a little more and, of course, a surprise hike today would be the most bullish scenario for EURUSD. On the other hand, if the ECB fails to deliver a hawkish enough message today, EURUSD could start to weaken as focus reverts back to rising oil prices and Fed monetary policy implications.

Technical Views

EURUSD

For now, the pair is fighting to stay atop the 1.1404 level and the March lows. Momentum studies are weak, however, and if we break lower here focus will turn to the deeper 1.1206-level as a bear target. Topside, bulls need to clear 1.1490 to alleviate near-term downside risks.