The EUR/USD is currently on a bearish momentum.
After failing to breach the middle bollinger band, the EUR/USD dips and proceed to test the strong sentiment and technical region region of 1.1.
In our weekly forecast we mentioned of the possibility of the 1.1 region to function as a pivot. Now that the price action is just above 1.1, it is crucial to monitor closely to see how the currency pair reacts.
Positive US Economic Data
The US PPI came in better than expected. Producer Price Index is important because the price of goods sold by producers influences the downstream impact of inflation. If inflation is high, a central bank may increase interest rate to mitigate the situation. This positive result is likely to add some demand for the US Dollar.
ECB Interest Rate Event Ahead
The ECB is due to release the latest Main Refinancing Rate, together with the Monetary Policy Statement and Press Conference. There are reports of a general market expectation of a cut to the deposit facility rate. This will lower it from -0.4% to -0.5%. There are also speculations that additional quantitative easing measures will be introduced. These will likely affect the demand for the Euro.
If the monetary policy statement indicates the possibility of deterioration, sentiment towards the Euro currency may be hit. In fact a number of analysts believe that the current dip of the EUR/USD is caused by selling in anticipation of the ECB release.