ECB On Watch Next Week 

Looking ahead to next week, the other main focus for traders away from the Fed will be the ECB. The bank is widely expected to hike rates by a further .25%, in line with recent hawkish comments from several ECB members. Additionally, the bank is expected to signal further hikes as likely necessary through the remainder of the year.  However, looking at the softening in EUR on the back of the BOC rate hike this week, it’s clear that the market’s main concern currently is the potentially hawkish shift for the Fed. With this in mind, EUR looks vulnerable to fresh downside on the back of the ECB meeting.

High Bar for ECB

Given that a .25% hike and hawkish forward guidance are already baked into the outlook, the ECB would likely now need to step up its hawkishness in order to drive fresh buying in EUR. This will be particularly true if we get any hawkish surprise from the Fed next week such as a further rate or a more clear signal that further hikes will be coming if the bank does pause this month. If the ECB is unable to do something to take markets somewhat by surprise then it risks losing the bullish EUR outcome from the meeting.

Technical Views

EURUSD

The break below the bull channel is a warning sign for bulls. However, the move has yet to develop into a proper sell off and is still very much corrective. The key level to watch Is the 1.0515 level. If price breaks below that level this could pave the way for a much deeper move lower towards the 1.0093 and parity below. To the topside, if bulls can hold above the 1.0785 level, focus shifts back to the 1.1126 highs next.