The EURUSD is carving fresh three year highs less than 24 hours ahead of Thursday’s ECB announcement.
At the moment, the pair is trading above the 2008 crisis low at 1.2325. It’s a level I mentioned in the January 14 weekly commentary and one that triggered the January 17 selloff.
If buyers manage a daily close (5 pm EST) above 1.2325, the area should begin to serve as support. However, there’s a sizeable challenge with trading the Euro in the next 24 to 48 hours.
Thursday’s ECB rate decision will no doubt shake things up for the single currency. The events kick off at 7:45 am EST and conclude with an 8:30 am EST press conference from Mario Draghi.
The increase in volatility and uncertainty are enough to keep me on the sideline. Instead, I’ll look to the price action that forms following the events. If we see bullish price action at 1.2325, it could produce a favorable buying opportunity.
But first, we need a daily close above the 2008 low at 1.2325. Without that, there is no incentive to buy the EURUSD from a purely technical perspective.
If the pair closes above 1.2325, there isn’t much standing in the way of a retest of the 1.2525 area. Alternatively, a daily close back below 1.2325 would keep speculative bears happy and re-expose key support at 1.2160.
Now, for those who read yesterday’s EURJPY commentary, you may be wondering how the two themes play on one another.
How can we have a potentially bearish EURJPY while the EURUSD is surging?
It is possible for the EURUSD to gain while the EURJPY loses ground. Look no further than the past 48 hours.
However, it will be incredibly difficult for EURJPY bears to make any significant progress while faced with an appreciating Euro. That’s especially true if the single currency goes vertical, as it’s doing today.
An exception to that rule would be a ‘risk off’ shift in sentiment that would cause the yen to outpace the Euro by a considerable margin.
There’s no indication of that yet, but there is also no shortage of ticking time bombs across the globe. My experience also tells me that exhaustion patterns almost always precede fundamental catalysts.
The bottom line is that something has to give. And with the ECB on tap less than 24 hours from now, my guess is that we may not have to wait long for a catalyst.