- Euro bulls take a break before the ECB decision.
- The ECB is expanding its bond purchases to accelerate the economic recovery.
- The rebound of the US dollar in a climate of prudence on the market.
Amid a general rebound in the US dollar, EUR / USD corrects further from three-month highs of 1.1257 before European opening, while bulls take a break before the key monetary policy decision of the European Central Bank (ECB).
The mood of the market has become cautious in Asia and has revived the safe haven demand for the US dollar, while US-China tensions continue to dampen investor sentiment. The US dollar index jumped 0.20% to flirt with daily highs of 97.47, after hitting a three-month low at 97.19.
Despite the latest decline, the main currency pair remains above the 1.1200 barrier, supported by cross-force and expectations that the further stimulus from the ECB will likely accelerate economic recovery.
The overnight drop in the pound, in the wake of doubts about a likely extension of the Brexit transition and the resulting EU-UK trade deal, pushed the EUR / GBP cross close to 0.20% higher.
Meanwhile, the ECB is expected to add roughly € 500 billion to its Pandemic Emergency Purchase Program (PEPP) in another effort to support the economy hit by coronaviruses.
However, a further correction in the principal cannot be ruled out when the ECB is announced, since the additional stimulus is already integrated by the markets. Meanwhile, optimistic data on jobs in the United States could support the rebound of the US dollar and could probably work together with the decline in the EUR / USD.
EUR / USD technical levels to watch
Immediate resistance awaits at 1.1257 (three month high), above which 1.1300 remains on view. On the other hand, the supports are aligned to 1.1171 (5-DMA) and 1.1128 (Daily Classic S2).