Euro in focus ahead of the ECB

Moves in the single currency are perhaps the most interesting to watch at the moment, as weakness persists heading into the ECB meeting.

Euro
Source: Bloomberg

EUR/USD is being weighed on by benign economic data, geopolitical risk and its general use as a funding currency. Analysts are quite split this week on what Thursday’s ECB meeting will deliver. Some are tipping an ECB rate cut and others are eyeing a stimulus package, while the rest aren’t expecting action just yet.

However, if we don’t get action or an indication that action is imminent, this could be a game changer as far as price action is concerned. With EUR/USD trading at a fresh cycle low on Friday and fast heading towards September 2013 lows, there is a risk we’ll see those lows tested in the near term.

The pair is already looking quite vulnerable in Asian trade. With German GDP, Spanish manufacturing PMI, Italian manufacturing PMI and the region’s PMI due out, there is room for some volatility. Given the fact the pair is in oversold territory at the moment, a test of 1.3100 could encourage some short-term support.

EUR/USD
Click to enlarge

USD/JPY back above 104

The BoJ is also meeting this week and, while the market isn’t really expecting any fresh measures, traders will be reluctant to get caught out while short USD/JPY. Traders will be keeping a close eye on the BoJ’s current assessment of the economic recovery. Any hints towards the recovery losing steam are likely to be construed as positive and trigger further yen weakness.

USD/JPY traded back above 104 and is just shy of last week’s high of 104.28. A retest of this high could lead to a near-term breakout and see the pair potentially head towards the 105 region.

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