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EUR/USD trading calm ahead of ECB decision, January 22, 2024

eurusd forex trading analysis

On Monday, the EUR/USD pair exhibited a calm trading session, hovering just below the 1.09 level within a narrow range. This tranquility in the foreign exchange market was attributed to the absence of significant macroeconomic news and crucial events slated for the later part of the week. Consequently, market participants exercised caution, resulting in an overall sense of inertia within the trading environment.

Despite an initial attempt in the morning, the EUR/USD exchange rate struggled to surpass the 1.09 level. Although outwardly the currency market appeared stagnant, valuations of the majority of major currency pairs hinted at a subtle pressure on the US dollar.

Before investors could formulate decisive strategies, it is noteworthy that the economic calendar remained completely devoid of major events on that particular day, and a similar trend was anticipated for the following day. Genuine currency trading activity was projected to kickstart only during Wednesday's trading session.

Presently, investors are eagerly anticipating a sequence of data releases and policy decisions from central banks, factors that hold the potential to significantly influence movements in the currency market. In this context, a pivotal event on the horizon is the impending decision by the European Central Bank (ECB), scheduled for announcement on Thursday. Market expectations lean towards the ECB maintaining a cautious stance in altering its monetary policy.

Forecasts in the financial realm suggest that the European Central Bank might opt to prolong higher interest rates. Should this scenario unfold, especially accompanied by a hawkish policy statement, it is anticipated that the euro's exchange rate would initiate a recovery phase against the US dollar.

In the realm of the US dollar exchange rate, the probability of a March interest rate cut by the Federal Reserve (Fed), mirroring a similar sentiment in the ECB, has diminished. This equilibrium in the EUR/USD quotes indicates that the market is in a state of anticipation, awaiting signals regarding future actions from both the ECB and the Fed.

Considering that the ECB is make the first move and deliver a crucial statement, there is a prevailing belief that the euro's exchange rate will experience gains against the dollar in the immediate future. Market dynamics are expected to play on the hawkish signals from the ECB, likely eliciting a positive response.

While the EUR/USD pair displays positive divergence, albeit without significant demand dynamics, the possibility of initiating a long position before the ECB meeting is not entirely ruled out.

EUR/USD, daily chart, MetaTrader, forex trading
EUR/USD, daily chart, MetaTrader, 22.01.2024


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