EUR/USD: Gains capped amid ECB/ Fed policy divergence

The EUR/USD pair staged a solid 40-pips rebound from session troughs, although failed just shy of yesterday’s high and eased over the last hours, as focus shifts to the ECB decision due later this Thursday.

EUR/USD capped below 1.0800                                                                       

Currently, EUR/USD now trades modestly flat at 1.0766, retreating form session highs reached at 1.0785. The main currency pair erased almost entire gains as monetary policy divergence between the Fed and ECB came back in the spotlight, and dented the sentiment around the euro.

The ECB is likely to announce extension of its QE program beyond March 2017 at its policy meeting on Thursday, while the Fed is widely expected to hike rates next week.

Moreover, a minor-recovery staged by the European equities also weighs negatively on the funding currency status of the euro. While the investors ignore in line with expectations Eurozone revised Q3 GDP data.

Earlier on the day, a major pullback in the US dollar coupled with better-than expected German factory orders data triggered a fresh buying-wave in the EUR/USD pair.

Attention now turns towards US trade and factory orders data due later in the NA session, while the main risk event for the major remains the ECB policy decision due out later this week.

EUR/USD Technical Levels

In terms of technicals, the pair finds the immediate resistance 1.0798 (3-week highs). A break beyond the last, doors will open for a test of 1.0817 (Nov 15 high) and from there to 1.0850 (psychological levels). On the flip side, the immediate support is placed at 1.0700 (round number) below which 1.0683 (5-DMA) and 1.0646/39 (10 & 20-DMA) could be tested.