EUR/USD post European Central Bank (ECB) meeting gains despite Christine Lagarde warning that the rising value of the Euro adds downward pressure to prices. The Relative Strength Index (RSI) could provide a buy signal threatening the descending trend which continued since late July.
EUR/USD 2020 TOPS IN FOCUS, RSI ENDANGERS DOWN TREND
With the ECB looking set to remain steady on monetary policy for some time and the latest staff projections suggesting that the central bank with stick with its current tools to support the economy , EUR/USD could continue pulling back from the 2020 high (1.2011).
The ECB is expected to stay in wait and see mode in its next meeting on October 29 as the Governing Council stands “ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner,” .
However, demand for EUR/USD could remain strong after President Lagarde insisted that “the European Central Bank does not target the exchange rate.”
The ECB could hold steady on policy for 2020 given the European Union (EU) plans to make the EUR 750B recovery fund available from 2021 to 2023. The Federal Reserve’s interest rate decision could drive EUR/USD in the near term as Chairman Jerome Powell targets average inflation of 2%.
The updated Summary of Economic Projections (SEP) could weigh on the greenback should the dot plot be lowered to reflect the lower long-term forecast on Fed Funds. With the Fed showing few signs of scaling back emergency measures from earlier in the year, the current market trends could hold until the US Presidential elections.
A continuation of the June meeting may spark a limited reaction as EUR/USD continues to pullback from the 2020 high (1.2011) tracking the monthly range which has so far failed to test August low (1.1696).
Crowding behaviour in EUR/USD is set to remain as rate extends its rebound from the monthly low (1.1753) as retail traders have been net-short the pair since mid-May.