Stocks came down in the last few session, as speculators don't want to play any breakout game ahead of an important FOMC rate decision tomorrow. We have seen some interesting reversals lower across the board; even gold and crude oil are trading south, which means that risk-off is happening, which supports USD. Plus, German Retail sales came out -5.2% vs. -0.1% expectations. so EUR/USD is coming aggressively lower, which puts more fuel on dollar longs.
Looking into the week ahead, the ECB, FED, and BoE will be the main driver for the markets. We know that ECB has been very hawkish with their comments lately, so it’s not surprising to see EUR/USD higher in January. Still, many CB actions are already priced in, so we are aware of a potential surprise on the EUR significantly as economic data is weakening.
What if ECB disappoints on Thursday and will somehow try to be more careful with rates in the next upcoming meetings? Then I believe that EUR/USD will come aggressively back to the downside, especially if we consider BoC's and possibly FED's plans. However, it’s not about what they do now; it’s about what will be their message for decisions in the next meetings.
From an Elliott wave perspective, we see EUR/USD now trying to come much lower after the completion of an ending diagonal. But remember that these patterns cause a sharp reversal, so a real sell-off may not even be started. I see bearish intraday flows for 1.07-1.075 while the price trades below 1.09. Break above 1.09 calls 1.10.
