EUR/USD Weekly Forecast – 2/06: Volatility is Coming (Chart)

The EUR/USD finished trading comfortably above the 1.08000 level this Friday, this as the currency pair and speculators await the European Central Bank’s rate decision this coming Thursday.

• The EUR/USD is set to begin trading near the 1.08475 mark early tomorrow morning.
• The currency pair enjoyed a rather solid test of its near-term price range the past handful of days and the ability to go into the weekend perched well above the 1.08000 level is likely being received by companies and investors with an interest in seeing a strong value for the EURO in a positive manner.

A low of nearly 1.07860 was tested this past Thursday, but trading below the 1.0800 level proved to be momentary. The price action on late Wednesday ant into early Thursday while lows were tested and the ability of the EUR/USD to then incrementally rise is noteworthy. Also worth a technical glance is the notion that the 1.08100 ratio when tested briefly on Friday proved rather durable and a climb to a high of nearly 1.08850 then happened, this before traders sold the EUR/USD a bit as the day concluded.

U.S and E.U Economic Data and the European Central Bank

The EUR/USD is trading within the upper elements of its one month price chart and as this week starts financial institutions are seemingly leaning towards a stronger outlook for the currency pair. Economic data from Germany last week showed the CPI had eroded slightly which was important taking into consideration the ECB will be meeting this week. And U.S economic data via GDP and inflation continues to show the U.S economy is slowing slightly and that price pressures may be starting to become weaker.

Importantly, many analysts believe the European Central Bank will cut its interest rate this Thursday by a quarter of a point. While day traders may feel flustered by this news and expect volatility to arise from this event, they should remember the cut has likely already been factored into the EUR/USD already. If the ECB does cut its interest rate as expected it will be the ECB Monetary Policy Statement and Press Conference that will then become the focal point for EUR/USD speculators. What financial institutions will want to know is if the European Central Bank is considering the potential of another cut to its Main Refinancing Rate later this summer. If the ECB rhetoric says openly there is a potential this could happen, then it will generate fireworks in the EUR/USD.

EUR/USD Moving Ahead of Other Currency Pairs

The potential that the ECB will cut its interest rate before the Federal Reserve is intriguing. The Fed’s FOMC Statement on the 12th of June as of now is not expected to produce a rate cut. Meaning the ECB will be the lead dog regarding interest rate cuts. The potential of the ECB offering an opinion that it will cut again in the months to come will have to be weighed against the outlook that expects the Fed to sound dovish the following week.

• This will lead to volatility and the question is how financial institutions will react to a proactive ECB compared to a reactive Fed if this proves to be the case.
• The high for the EUR/USD last week happened on Tuesday after the Germany inflation numbers came in weaker than expected.

EUR/USD Weekly Outlook:

Speculative price range for EUR/USD is 1.08030 to 1.09710

Having attained a solid rise in value the past month the EUR/USD will prove to be an interesting testing ground early this week before the ECB pronouncements. Because of the volume within the EUR/USD, day traders will need to understand financial institutions are likely going to try and position before the ECB’s announcements. The expected interest rate cut by the ECB will cause a storm, but it is the interpretation of rhetoric afterwards that may create the most interesting dynamics this coming Thursday. Until then trading in the EUR/USD will definitely be choppy. 

To make matters more intriguing the Non-Farm Employment Change numbers will come from the U.S on Friday and add to the rather vibrant EUR/USD speculative circus which will certainly be playing out. Traders who believe there is upside to pursue in the EUR/USD cannot be blamed, but choppiness and momentary reactions being generated by nervous behavioral sentiment are certain to cause a test of support and resistance levels the entire week for the currency pair. Traders should be careful and use strict risk taking tools to make sure they are not hurt by the fast price velocity which is going to be seen. 

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