EUR/USD clocks 4-day high, nears 50-MA ahead of ECB, focus on yields
- EUR regained bid tone ahead of the ECB, but remains below 50-day MA ahead of the ECB
- Common currency likely to take cues from the action in the bond yields post ECB
Having regained the bid tone on Wednesday, the common currency picked up pace in Asia and pushed the EUR/USD to a four-day high of 1.1833.
Trades below 50-day MA
At the time of writing, the spot is trading below the 50-day moving average level of 1.1849. A break above the key moving average could be seen if the already weak (down close to 2 basis points) US 10-year treasury yield extends losses in Europe.
Focus on ECB and bond yields
The European Central Bank (ECB) is likely to begin tapering its EUR 2.3 trillion stimulus program today. It is widely believed that the central bank will do a balancing act by announcing a 'lower-for-longer QE'. (Dovish taper).
According to Bloomberg surveys of strategists, dovish taper is expected to elicit more tempered moves in a market positioned for a relatively benign outcome. Meanwhile, hawkish surprise could push German bond yield to the highest since 2015 and EUR/USD to 1.20 levels.
Watch out for Italian bond yields
Italy has a debt problem and hence is vulnerable to (potential) spike in the interest rates. The EUR could come under pressure if the Italy-German bond yield spread widens following the taper announcement.
EUR/USD Technical Levels
FXStreet Chief Analyst Valeria Bednarik writes-
"From a technical point of view, the 4 hours chart shows that the pair settled above its 20 and 100 SMAs, but remains below a bearish 200 SMA, while technical indicators partially lost their upward strength within positive territory, favoring the upside anyway. Beyond the mentioned 1.1820/30 region, the pair has scope to test 1.1860 en route to the 1.1900 figure. Still, it's all about ECB's decision this Thursday, and how the market reacts to Draghi's announcement."
Support levels: 1.1770 1.1720 1.1690
Resistance levels: 1.1825 1.1860 1.1900