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The key fundamental EUR/USD risk event of the week has passed without too much reaction from the currency pair. European Central Bank Chief, Mario Draghi, did express concern in a speech last night that the high value of the Euro was a drag on the Zone’s recovery, this is not the first time that he has made such a statement and as normal it was tempered with the comments that the exchange rate is not a target policy of the Bank.
Assuming that the Final version of the June Euro inflation figures on Thursday don’t deviate too much from the already public Preliminaries, then any news driven action in EUR/USD will have to come from the US Dollar side. This doesn’t imply that there won’t be any volatility this week, there are a larger number of Dollar sensitive releases than average over the next few days and the main one to watch out for is the Congressional testimony by the Fed Chair, Janet Yellen, on Wednesday. FOMC voting member, Charles Plosser, has been publically calling for a truncation of the timeline around the Feds ‘accommodative’ policy and this will be Yellen’s first opportunity to react to this.
Outside these risk events it is difficult to see where EUR/USD will get the impetus for yet another challenge on the 1.37 figure. Although somewhat range bound the pair is very heavy with every buying action getting thoroughly overturned. The support line at 1.3592 is holding up well for now but once it gives there is relatively clear air underneath for a steady drop down toward 1.35, there is likely to be some residual support around 1.3537 due to this level causing some minor reversals early in June. Also worth keeping an eye on are the narrowing bollinger bands (20, 2) as it is not unusual for this pair to undergo a swift correction when the market tightens up like this.
Thierry Laduguie is Trading Strategist at www.bettertrader.co.uk
