The EUR/USD crashed for the second straight day as investors waited for the September interest rate decision by the European Central Bank (ECB). The pair dropped to 1.1800, which was the lowest level since Thursday last week.
ECB decision ahead
The biggest catalyst for the EUR/USD this week will be the ECB interest rate decision scheduled for Thursday. Analysts expect that the central bank will leave interest rates unchanged as the bloc’s economic recovery accelerates.
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The key information to watch during this decision will be the bank’s approach to quantitative easing. In it, the bank is acquiring assets worth 1.85 trillion in a bid to improve liquidity and lower the cost of borrowing.
Some analysts expect the bank to maintain the current pace of asset purchases as the bloc battles the new wave of the pandemic. The most hawkish decision will be a decision to dramatically slow down the pace of purchases.
The decision will come two days after the Reserve Bank Australia decided to slow the pace of purchases and extend the period of these purchases to February. It will also come a day after the Bank of Canada left interest rates and quantitative easing policies unchanged.
At the same time, it comes after some encouraging data from the Eurozone. Last week, data by Markit revealed that manufacturing and services output remained steady in August. Further data showed that the region’s economy rebounded at a faster pace than expected in the second quarter.
Most importantly, the employment situation in the Eurozone has improved while inflation has risen to 3%. Like the Fed, the ECB will likely point out that this inflation wave is transitory.
The EUR/USD pair will also react to the latest Fed Beige Book and the upcoming initial jobless claims data.
EUR/USD technical analysis
The daily chart shows that the EUR/USD pair rose to 1.1904 last week after the weak US nonfarm payrolls data. The pair has dropped in the past three consecutive days and it seems like it has formed a double-top pattern whose neckline is at 1.1660.
The pair is also being supported by the short and longer moving averages while the Relative Strength Index (RSI) has been falling. If it ends the day in the red, it will have formed the so-called three black crows pattern.
Still, while these patterns are bearish, there is a sense in which the sell-off has been overdone. As such, the pair may resume the bullish trend after the ECB decision.
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