The central bank is widely expected to leave the current stance of its monetary policy unchanged
The euro turned positive on Wednesday following modest losses witnessed yesterday as the greenback came back under the selling pressure nearly across the board. The dollar managed to regain some ground in recent trading but stays on the defensive as traders await US CPI data due on Thursday. Also, market players are preparing for the upcoming ECB meeting due tomorrow as well.
The central bank is widely expected to leave the current stance of its monetary policy unchanged. The focus of the meeting is the outlook of PEPP purchases in the second half of the year. Despite the state of the Eurozone economy has improved and the vaccination has accelerated, the ECB is expected to maintain the current pace of purchases for another three months.
In general, the central bank could express a dovish tone in its statement, citing the uncertain path of economic recovery from the pandemic. On the positive side, the bank could revise higher its economic projections. In this scenario, the euro could see a limited reaction to the outcome of the meeting, with downside risks prevailing.
From the technical point of view, if the EURUSD pair fails to overcome the 1.2200 barrier any time soon, a pullback could be expected. A daily close above the 20-DMA would mark some improvement in the short-term technical picture and could eventually bring the 1.2225 intermediate resistance back into market focus while the key target for euro bulls arrives at the 1.2266 figure seen two weeks ago. On the hourly charts, the common currency has bounced from the 20-SMA to recover above the 100-SMA, suggesting the prices could regain the 1.2200 level in the short term.
As for the greenback itself, the USD index extends the consolidative mood around the key 90.00 figure. A break below it should open the door to a deeper retracement to the May’s low near 89.50.