Euro / U.S. Dollar
Short

EUR/USD bears find new fuel thanks to the ECB – 1.1100 in focus

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After the ECB rate decision yesterday, and the Fed rate decision coming up next Wednesday, we want to focus today on the EUR/USD.

The currency pair saw a drop over the last few days, and went for a test of its current yearly lows after the ECB statement was released.

While the ECB kept interest rates unchanged, it adjusted its forward guidance in a way which allows rate cuts, but also rate tiering (to relieve pressure on European banks resulting out of a collapse in yields) and QE in the near-term.

In addition to that, the mentioning of inflationary pressures which have been persistently below levels that are in line with the central bank's aim (note: 2%), and as long as that's the case, the ECB will adjust all of its instruments as appropriate.

With that said, further monetary stimulus should be expected, coming probably in September, with the European Central Bank lowering interest rates into negative territory. So, the already expected rate cut from the Fed next Wednesday will most likely not trigger a sharp reversal in the EUR/USD.

This is especially true if today's US GDP Growth Rate data comes in better than the expected 1.8%. After the solid Retail Sales data on July 16 (which saw a print of 0.4% against the expected 0.1%), and knowing that Retail Sales account for around 30% of the GDP, a better-than-expected US GDP print is a serious option and could trigger some USD strength if it results in an "out-pricing" of a fourth rate cut in 2019 in the Fed Watch Tool.

Technically, we carefully watch the region around 1.1180/1200 as a potential Short-trigger, against which a sustainable break below 1.1100 could be anticipated. The outlook on H4 stays clearly bearish as long as we trade below 1.1280/1300.

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