The European Central Bank will pay close attention to the deterioration in data visible in Europe since the beginning of the year. A cautious attitude translates into a sell-off of the euro, especially as data from the US looks very good at the same time.
The ECB will continue a cautious approach because there is still a lot of time to end the bond-buying program, and macroeconomic data have recently deteriorated. The message itself could have somewhat disappointed the markets, as the assurance that the program would be extended if the need arose was maintained. Meanwhile, two weeks ago, individual members of the ECB Council indicated that the program should be finalized this year. President Mario Draghi noted the deterioration visible in macroeconomic data, focusing on PMI indicators. Recall that the PMI for the Eurozone industry deteriorated in each of the first four months of the year. Draghi noted that this may be a period of normalization after a strong recovery in 2017, but he added quickly that the ECB will closely watch whether sometimes it is not a deeper process that could significantly undermine the entire recovery and dismantle the inflation target. For the markets, it is also a clear signal that central banks will react to the effects of oil, which is currently very expensive. The ECB makes it clear that it is simply running its game and does not intend to change anything. Thus, current trends clearly prefer the dollar and as a result, the pair of EURUSD have the strongest declines this week for over 2 months and at the same time the lowest level since the first week of the year. However, it is worth remembering that the dollar remains overvalued in the long term, and the White House's intention is not a strong currency, which is why in my view the dollar strengthening is corrective and probably the majority of this correction is behind us already.
Let's now take a look at the EUR/USD technical picture in the H4 time frame. The market has hit the level of 1.2154 and now this level will act as a resistance to the price. The projected target for the current wave down is at the levels of 1.2079 (127% Fibo Ext) or 1.2054 (50% Fibo Ret of the larget time frame). Please notice the down move is now mature and the corrective pull-back might start very soon. The overbought market conditions and clear bullish divergence support the short-term bullish outlook.
