EUR/USD trades around 1.11080, stuck above its 50 and 200-day moving averages. This points to a bullish yet directionless market ahead of the ECB rate decision today. Two scenarios are likely:
Scenario 1 (Bullish):
If the ECB delivers a 25bps hike as expected while maintaining a dovish tone, it could spark an upside breakout above 1.11191 resistance. This may open the door for a rally to test 1.11290, 1.11439 and 1.11552. Above here, the 1.11662 and 1.11870 levels could be challenged as bulls gain control.
Scenario 2 (Bearish):
An overly hawkish ECB hike of 50bps or hawkish guidance could sink EUR/USD below 1.10931 support. That may trigger declines to 1.10739, 1.10593 and 1.10443. Below the key 1.10365 level could accelerate losses towards 1.10289 and 1.10122.
The bullish RSI signals upside momentum is building. However, the pair may consolidate between 1.10365 and 1.11662 pre-ECB. The levels around 1.11000 are key near-term.
Overall, expect a decisive breakout in EUR/USD following the ECB decision. A dovish stance favors the topside towards 1.11870 while a hawkish surprise could see a drop to 1.10122. The reaction will set the directional bias.
