EUR/USD continues to trade close to the 1.1600 level
The large option expiries throughout the week have played their role in keeping price action more contained, with any upside push also stalling at the key hourly moving averages (red and blue lines) as seen above.
This all points to a lack of conviction among traders for the time being with the euro focused on the ECB meeting later today.
No major policy changes are expected as this should be a placeholder for the December meeting but there will be a few things to watch out for.
The first being the hot topic on everyone's lips i.e. inflation. The ECB's transitory narrative has been dealt a heavy blow as continuous inflation readings have served to reaffirm that price pressures are surging and they are likely to stay for quite some time.
Amid the jump in energy prices and supply bottlenecks, they are proving to be more sticky and the ECB is finding it tougher by the day to defend their stance during the summer.
Will they cave under the pressure today? I doubt we'll see a full concession but Lagarde & co. might acknowledge risks of higher inflation to follow going into next year. That said, expect her to clarify that such conditions does not warrant any tightening of policy.
The other key thing to be mindful about is the economic outlook as supply and capacity constraints are weighing heavily on output and productivity. That certainly threatens the recovery and could see downward revisions to forecasts going into 2022.
With regards to the euro, it is going to be a tough one to sort out in the immediate aftermath but on the balance of things, as long as real yields remain subdued and other major central banks are diverging away from the ECB, that should be one big reason for the single currency to decline in the medium-to-long-term at least.
