EUR/USD has posted slight gains on Wednesday. In the North American session, EUR/USD is trading at 1.1813, up 0.34% on the day.
ECB meeting overshadowed by concerns over strong euro, deflation
The euro has looked strong recently and even flirted with the symbolic 1.20 level last week. However, EUR/USD has retreated slightly, as the pair has not had a winning daily session in September. The value of the euro is 10% stronger than the ECB projected, as the bank’s June forecast projected an exchange rate of 1.08 for the pair. A stronger euro has hampered eurozone exports. which have become more expensive. The ECB holds its policy meeting on Thursday. Investors will be especially interested to see if the ECB rate statement or ECB President Lagarde’s press conference express concern about the euro’s appreciation. If so, we could see strong demand for euros which would send EUR/USD higher.
Another issue that could receive some attention at the meeting is deflation. Eurozone CPI posted a dismal reading of -0.2% in August (y/y), the first decline since 2016. Add to this a GDP contraction of 12% in Q2 and lukewarm PMIs, it’s easy to see why inflation is going nowhere, fast. The last thing that policymakers need on their plate is deflation, but the ECB may decide to wait till the December meeting and give its current stimulus package more time to boost economic activity and raise inflation.
After a quiet Asian session, EUR/USD posted gains in European trade. The upswing has continued in the North American session
- EUR/USD broke above resistance at 1.1813 in the European session. The next resistance line is at 1.1852
- There is weak support at 1.1790, followed by support at 1.1751