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During my analysis of the EUR/USD pair on Thursday, the first thing that I would have to bring to the forefront is the fact that the statement coming out of the European Central Bank was dovish. While the ECB did of course cut rates by 25 basis points as expected, the reality is it's the statement that everybody was paying attention to.
It is worth noting that according to the European Central Bank, they expect the European economy to recover over the next several years, but they also recognize that there could be a bit of sluggish short-term growth due to geopolitical risks and consumer confidence issues. While I agree with that assessment, I think Europe has major structural issues that they will have to come to terms with, and there could be a bit of a crisis when it comes to sovereign debt before this is all said and done, but I digress.
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The market initially tried to rally during the day but was squashed as it entered a fairly significant area of consolidation. That being said, it is probably worth noting that we are still in that consolidation, albeit just barely. The market is seemingly using the 1.05 level for a bit of an anchor at the moment, and as long as that's the case, I think range bound traders will be attracted to this market. However, there's really nothing to suggest that the euro is suddenly going to take off to the upside against the US dollar. While we do have the Federal Reserve meeting next week, it's expected that the Americans will probably sit still with their monetary policy until at least March.
EURUSD Chart by TradingView
This sets up the possibility of more“fade the rally” type of set ups in this market. If we were to break that 1.03 level underneath though, we will hit parity before it is all said and done. While I don't know if that happens right away, that's exactly what I expect to happen before the trend reverses.
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