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EUR/USD: driven by short-term data

EUR/USD: driven by short-term data

Information is not investment advice

What’s up?

The European Central Bank will release the minutes of its December meeting on Thursday, January 16, at 14:30 MT time. Then, the US retail sales figures will be out at 15:30 MT time. In addition, the ECB President Christine Lagarde will speak at 20:00 MT time. These events should move the EUR/USD thus proving trading opportunities.

Why is it important?

The new ECB meeting is scheduled for next Thursday, January 23. This event trends to draw great attention of the market. As it always happens, traders will form expectations ahead of it, and today’s release of the ECB Monetary Policy Meeting Accounts will help them to do so. Market players will look for any information about the central bank’s framework review, and, in particular, about whether the regulator plans to change its inflation target.

Currently, the ECB aims to keep inflation “below, but close to 2%”. If the minutes show that central bank members are in favor of a wider target range, for example 1.5%-2.5%, the regulator will have the official excuse not to act very aggressively, even though the inflation is low. Is so, the EUR will strengthen. If, however, the ECB decides to adopt a simple 2% inflation target, it will be able to keep rates lower for a longer period of time to achieve this higher inflation goal. As a result, the initial impact on the EUR will be negative.     

As for the US retail sales figures, the indicator will show how active US consumers were during the Christmas season. Normally, the data should be strong as people tend to buy more ahead of the holidays. The forecasts are rather good, but if the release disappoints, the USD will be hurt.    

The impact on the EUR

So far, the attitude towards the EUR has been quite positive: the market has focused on the positive signs from the European economy, the improvement of the US-China trade relations, and the reduction of Brexit uncertainty. At the same time, the changes for the best seen in the euro area aren’t that big. Without the fiscal stimulus, EUR/USD will be driven up by the USD weakness rather than by the EUR strength.      

EURUSDH4 e.png

EUR/USD has been moving up since January 10. There will be resistance at 1.1180 (October highs) ahead of 1.12 and 1.1240. Support is at 1.1137 (200-day MA), 1.1120 (the bottom of the short-term bullish channel) and 1.1105. In the short term, the upside seems to be the path of the least resistance.

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