The Euro is licking its wounds after a substantial drop last week
With the Euro dropping the most in two days for several months in the aftermath of the latest ECB press conference it is now consolidating its losses just below 1.3760. Several days before shedding the figures, volatility has hit a record low, only to resume its course after Mr. Mario Draghi has on firmed some market suspicions that the central bank will act next month.
Today the theme does not appear to be of US dollar strength, but rather of Euro weakness. The single European currency has been engulfed within tight ranges with the highest point reaching the 1.3775 area, before dropping to current levels.
With the Federal Reserve still a long way from considering a rate hike, near term strength could be ignored for the most part as the ECB is not likely to ease its monetary policy further from another rate cut to effectively tie with the Fed at 0.25%.
Looking at the chart the base has been set today around 1.3745 - a level which if broken could establish a border trend lower towards a drop to 1.3680. In our opinion this is the most likely scenario, this is why we advocate to buy hourly and daily puts if the price breaks below that level.
Alternatively, today's high at 1.3775 is containing the upside. If that level is broken on a sustained hourly basis we could see a swift rally towards 1.38 and possibly beyond. As of this point in time, this scenario looks less likely, however the balance of power hangs in the ability of the bulls to take some control of this sharp decline.
The coming days are holding a lot of events, and our forecast extends to tomorrow if we see no action tonight. the main benefactor for the Euro could be better than expected ZEW data from Germany tomorrow, while for the US dollar it is the Retail Sales figures, which could spark the next move.
Stay tuned to our forecasts section for updates as the week unfolds.