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Euro-dollar rangebound ahead of ECB, any rebounds short-lived

Date: Monday 01 Sep 2014

Euro-dollar rangebound ahead of ECB, any rebounds short-lived

Despite the EUR/USD having stabilised, the downtrend remains firmly intact, according to analysts.

While Danske Bank analysts expect the currency paid to range trade and possibly bounce around Thursday's European Central Bank (ECB) meeting, Digital Look technical analyst Cesar Nuez believes that rebounds to resistance at 1,3220 are very unlikely.

Danske Bank analysts said there are increasing risks that the market will be disappointed with the ECB decision on 4 September, which combined with the heavy EUR short positioning could trigger a bounce in EUR/USD. Nonetheless they noted that "any bounce should be short-lived".

Michel Hewson, analyst at CMC Markets favours a move towards 1.3020 after the currency pair broke below last week's 1.3150 low late on Friday, "negating the bullish daily candle which turned out to be a bull trap".

EUR/USD FORECAST AND STRATEGY

Below that level - which represents 50% retracement of the move from the 2012 lows at 1.2042 to the 1.3993 highs earlier this year - Danske Bank forecasts the EUR/USD to continue it's downtrend move. Thus, they targeted 1.30 in one-month view and 1.27 in three months. In six months, the EUR/USD will reach 1.26, they predict.

Given their expectations, they also lowered their target and stop-loss on their short EUR/USD recommendation to 1.27 and 1.35, respectively. "Leverage funds should stay short EUR/USD and use a possible bounce around the ECB meeting to add to positioning," they said.

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