Morning Report: EURUSD In The Hands Of The ECB

All eyes, and more importantly ears, will be on Mario Draghi today and with recent EU data coming in weak there is little to suggest we won’t be treated to more negative EUR rhetoric at Today’s press conference.In the absence of more powerful accommodative a weaker EUR plays into the ECB’s hands as it could be the most powerful driver of growth open to the ECB currently.

Both fundamental and technical views are looking quite weak for the EUR right now, and if current downside momentum in EURUSD is maintained then the next step lower could take the pair down to 1.20, the lowest level since before Draghi said he would do “whatever it takes” to save the currency bloc, back in July 2012.

From a technical perspective, having closed below key support at 1.2661 – the November 2012 low,  the pair has undergone a major bearish development that opens the door to further losses. Since the trending and momentum indicators are all pointing lower, if price stays below 1.2661 low then we could see back to 1.2043 – the July 2012 low.

Some technical support could emerge as price tests the  1.2466 (the 78.6% fib retracement of the 2012 lows to 2014 highs) . Final support ahead of the 1.20 lows comes from trendline support at 1.2240. However, aside from any significant fundamental shifts and/or news catalysts, both of these levels  should be nothing more than a chance for long term sellers to reload.

Currently the only indicator flagging potential correction is the weekly RSI which is in heavily oversold territory (lowest level since 2010. Coupled with this, the daily RSI is also flagging bullish divergence at new price lows. However, in this instance I expect that  fundamental factors will continue to weigh on the EUR, and any strength in EURUSD will be viewed as an opportunity to reposition inline for further downside.