Price continues to sit above the 200-hour MA
It brought the pair lower to test levels near the 100-hour MA (red line) but buyers held on to that and price recovered into the close to move above the 200-hour MA (blue line). And in trading today, that remains the line in the sand so far.
Buyers are keeping up with the near-term bullish bias despite the headline setback. The fact that ECB is considering fresh long-term loans isn’t anything too new but it’s more of the possibility of them doing so. It presents the case that banks aren’t doing well in the Eurozone and that financial risks are not yet abating despite the fact the central bank is looking to normalise monetary policy.
What’s adding to the negative rhetoric is the case of Italy’s debt situation. The yields spread between Italian and German 10-year bonds is sitting close to 300 bps and the threat of Italy’s budget going unresolved could potentially see it skyrocket to 400 bps – a level in which Italian banks are said to be needed to recapitalise.
Unless there is a massive risk beginning to arise, I don’t believe the ECB will pursue this measure too heavily. This is more of a just-in-case as they are looking to cover their bases when looking to normalise monetary policy next year. I wouldn’t be surprised if they do decide on this but as mentioned, it’s not necessarily a bad thing.
Downside should remain limited by the two key hourly moving averages while upside should be kept in-check by the 1.1450 region. Barring any headline surprises, that should be the trading range for the session ahead as markets look to balance out dollar sentiment ahead of the midterms tomorrow.
If anything, a downside break of the 100-hour MA presents an opportunity to short the pair towards another test of the 1.1300 handle. Other than that, range away.