Trade Of The Week: EURUSD waits for directional spark

• EURUSD enters standby mode

• EU data + ECB minutes in focus

• USD volatility could trigger breakout

• Key levels of interest at 1.0800 & 1.0700

After bouncing within a 100-pip range since early February, the world’s most-traded FX pair may be set for a big move.

The trend is bearish on the H4/daily timeframe but bulls have put up a good fight with support at 1.0700 and resistance at 1.0800.

It is a similar story on the weekly charts with the bullish pin bar signalling a potential reversal if prices push back above the 50-week SMA.

Nevertheless, the recent price action suggests that the EURUSD needs fresh motivation to trigger a potential breakout.

Here are 3 potential catalysts to keep an eye on:

1. EU data + ECB minutes

The euro could turn volatile from mid-week due to key EU data and the ECB meeting minutes.

Key reports in the form of the Eurozone consumer confidence and latest inflation readings among others may provide fresh insights on the future path of ECB interest rates. It will be wise to keep an eye on data from Germany, the largest economy in Europe.

Regarding the ECB minutes, investors are likely to closely scrutinise them for any clues on the timings of rate cuts.

Traders are currently pricing in a 45% probability of a 25-basis point rate cut by April, with a cut fully priced in by June.

These odds are likely to be influenced by the incoming data from Europe this week.

• The EURUSD may push higher if overall EU economic data and minutes signal that the ECB may need more time before cutting interests.
• Should economic data disappoint, inflation cools and the minutes sound dovish – the EURUSD may fall.

2. Fed minutes + speeches

The Fed minutes and speeches by Federal Reserve officials may inject renewed life into the dollar.

Although much has changed since the January meeting, it could provide investors with some insight into why Fed officials held off on cutting rates in March despite signs of cooling inflation.  Speeches by Fed officials will be closely scrutinized by market players for fresh clues on the timings of Fed interest rate cuts.

• Should the dollar end up weakening this week, the EURUSD is likely to push higher.
• If the dollar strengthens as data and Fed officials further dampen hopes of early cuts, the EURUSD has the potential to tumble.

3. Technical forces

The EURUSD is bearish on the daily timeframe as there have been consistently lower lows and lower highs. Prices are trading below the 50, 100 and 200-day SMA while the MACD trades below zero.

• A bearish daily close below 1.0800 may trigger a selloff back towards the 1.0700 support.
• A strong breakout and daily close above 1.0800 may encourage a move towards the 200-day SMA at 1.0825 and resistance at 1.0869 just below the 50-day SMA.

According to Bloomberg’s FX forecast model, there’s a 78% chance that EURUSD trades within the 1.0687 – 1.0869 over the next week.