After the Fed decision yesterday, EUR/USD managed to hold a push above its 100-day moving average (red line) and is maintaining that in trading today. That reaffirms a more bullish bias now in the pair but there is the risk of the ECB decision later.
The question now is whether there will be a risk of disappointment for the euro today coming from the central bank.
Going by the technicals, we are also seeing price action stall at the 50.0 Fib retracement level of the downswing in May at 1.0863 for now. But that is a minor resistance should buyers see more appetite to chase the break higher this week once the ECB risk is out of the way. That may pave the way for a move towards 1.1000 next.
But coming back to the ECB decision itself, a 25 bps rate hike today is a given. That is already fully priced in by markets and considering the recent ECB rhetoric, another 25 bps rate hike in July is very much expected.
So, anything short of reaffirming that or at least hinting at that possibly might end up being a disappointment for the single currency.
The risks are more tilted to the downside as even if Lagarde does pre-commit to a July rate hike today, euro upside may be more limited as markets have priced that in quite considerably. There's already 42 bps worth of rate hikes priced in as of now for the July meeting (that includes the 25 bps today).
However, the technicals are at least something that is working well for the euro and if the ECB does come off more hawkish, EUR/USD may be set for a quick run towards 1.1000 again next. But in the context of this week, don't forget about the minefiield of large option expiries rolling off tomorrow here. Must be the season of the witch...