- EUR/USD is seen sidelined ahead of the ECB event (Thursday).
- Probable extra ECB easing expected to cap rallies.
- Bearish view looks unchanged while below the 55-day SMA.
The cautious tone around the shared currency remains well and sound at the beginning of the week amidst a moderate recovery in the Greenback and a somewhat calmer US-China trade front.
Spot saw its upside momentum running out of steam near 1.1080 against the backdrop of the wider US-German yield spread, which has regained the 220 pts area. In fact, the positive environment for riskier assets triggered a moderate rebound in US yields to levels beyond 1.60% vs. a down move in yields of the German 10-year benchmark.
Looking ahead, it will be all about the ECB and the likely announcement of extra monetary easing on Thursday, while spot is expected to trade within a sideline theme ahead of this event. Despite a package of further stimulus is much priced in already, an extra-dovish surprise by the central bank carries the potential to encourage the pair to test recent YTD lows near 1.0920.
Technically speaking, EUR/USD faces the initial hurdle at the 1.1074/84 band, where align last week’s top and the 21-day SMA. A rebound beyond tis area should open the door for a test of key resistance line, today at 1.1132. Above it, the downside pressure is expected to subside somewhat and allow for a test of the more relevant hurdle at the 1.1163/65 band, where sit the 55-day SMA and late August tops.