EUR/USD sees bull-bear tug-of-war
- EUR/USD is trapped in a narrow range of 1.0727 to 1.0860.
- A breakdown would expose the 2020 low of 1.0636.
- European governments have left the ECB alone in the fight against coronavirus.
The EUR/USD bulls and the bears are fighting it out in the newfound trading range of 1.0727 to 1.0860.
The pair formed a long-tailed candle on Friday, marking dip demand or bear failure at 1.0727. Meanwhile, the long upper wick attached to Monday's candle shows rejection or buyer fatigue at 1.0860.
At press time, the pair is sidelined near 1.0825. The bias will remain neutral while the spot is held within the trading range of 1.0727-1.0860. A breakout will likely pave the way for at least a 100-pip rally, while a range breakdown would expose the 2020 low of 1.0636.
The direction in which the range will be breached largely depends on what the Federal Reserve and the European Central Banks announce this week. "Increased bond purchases is an option for both central banks but having eased aggressively between meetings, they may not be eager to up stimulus for a few more weeks," said BK Asset Management's Kathy Lien.
With the US government doing its bit in the fight against the coronavirus outbreak, the Fed can afford to remain on the sidelines and asses the situation on the virus front and the impact of the various easing measures announced over the past two months.
Meanwhile, European leaders failed to reach an agreement on spending last week, leaving the European Central Bank alone in a fight against the coronavirus-induced slowdown. Some observers think the ECB may hint that it is ready to provide additional easing in June. As a result, EUR/USD is more likely to suffer a range breakdown.
The focus is also on the first GDP readings. "We know that the US and Eurozone economy contracted in the first 3 months of the year but the question is by how much," said Lien. As for Tuesday, the Eurozone data calendar is light and the pair will likely take cues from the broader market sentiment.
Technical levels