A raft of manufacturing data out of Europe disappointed, which is perhaps due to geopolitical risk as sanctions against Russia go back and forth. The interesting point here is the fact the euro managed to hold steady in overnight trade, particularly against the greenback.
EUR/USD held on to the $1.2600 handle and we’ll be watching to see how traders position themselves heading into the ECB meeting. With inflation remaining benign for Germany and the region, along with a drop off in manufacturing, the ECB has a real task ahead of it.
I would be taking advantage of any strength and using it as an opportunity to sell the pair in the near term, especially on rallies towards $1.2700, as there is downtrend resistance which kicks in in this region. While the ECB is unlikely to announce further stimulus, it’ll be interesting to hear what they’ve got to say – particularly about the low uptake in the recent TLTRO allotment.
Focus will also be on details regarding the ABS and its covered bond purchase program. It is possible the pair could trade down to $1.2500 in the near future if Mr Draghi sounds more dovish than we expect.