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.

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.

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.

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.