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Forex: EUR/USD – choppy trade continues, ECB meeting on tap next week

FXstreet.com (Barcelona) - The EUR/USD finished the session down 3 pips at 1.3008. The pair had traded as high as 1.3093 early in the US session, before selling off back down near the 1.3000 level and finding firm support. Late in the US session, a headline of out Europe hit the wires which stated the Bundesbank ruled they would not allow sovereign bond purchase using the OMT. However, the headline had little effect, and the pair is well bid during Asia trading up 30 pips at 1.3036.

According to analysts at FXStreet.com, “The German newspaper referred to a confidential document sent to the German constitutional court, in which the Bundesbank rejects, again, the purchases of government bonds via the outright monetary transaction mechanism, also known as OMT. While one may think a headline of this kind would be too much to shallow for the Euro, the exchange rate felt almost immune to the next, with the catalyst distorting the slow yet steady progress of the pair being more chatter on an ECB rate cut.”

They went on to add, “Fundamentally speaking, the Euro continues with its large collection of negative-related news, yet as frustrating as it may be for potential sellers, the shared-currency still holds tightly around the 1.30 area. The EU shows a large plethora of concerning news, including mounting skepticism over the bloc's growth prospects, directly connected to the chatter of an ECB rate cut, with the case supported by Germany being the last to show weakening data.”

After the weak global economic data the past four days, the EUR/USD is essentialy right back where we started the day on April 9th. Many analysts believe the European Central Bank monetary policy meeting will be the catalyst to propel the pair out of its two week trading range, but other analysts aren't so sure and say there are reasons to be cautious.

According to Marc Chandler, Head of Global Currency Strategy at BBH, “Most recently a consensus has emerged in favor of an ECB refi rate cut next week. Yet there are reasons why an ECB rate cut is not a done deal. First, the refi rate is not the key rate in the current environment. It is the deposit rate, which is at zero and no one is seriously talking about cutting it.”

He went on to add, “Second, given the push back against austerity, the ECB may not want to send a signal that could be interpreted as endorsing the relaxation of fiscal discipline. ECB Vice President Constancio pushed back against views espoused by some, including EC President Barroso that "austerity had reached its limits" of public support, according to press accounts.”

From a technical perspective, we are basically in the same spot we have been for the past two weeks. Short term moving averages remain neutral, as well as the RSI (14). Furthermore, applying the ADX (14) trend following indicator to the weekly chart, the indicator is sloping sharply downward with a reading of 16.65. This is further evidence of an extremely range bound market in which buying strength or selling weakness can be extremely dangerous. Hopefully the monetary policy meetings next week can give us more direction!

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