The two most prominent central banks in the world, are going to hold their first regular meetings after the emergency interventions they were forced to make in the wake of the coronavirus market crash.
Both the European Central bank and the Federal Reserve were forced to loosen up their underlying monetary policies quite substantially in order to mitigate the negative impact on the two respective economies from the national lockdowns in the EU and the US.
That is why investors and traders would be watching quite carefully the two Banks' statements this week – the FED deliberates on Wednesday, and the ECB is meeting on Thursday – to find cues regarding the effectiveness of the two monetary policies in stemming the economic contractions.
No major changes are expected to be announced this week, with the two Banks likely maintaining their near-negative interest rates unchanged. The Federal Funds Rate is currently at 0.25 per cent, and the ECB's interest rate is at 0.00 per cent.
The key takeaways from the monetary decisions would be the adopted rhetoric of the two Governing Councils.
A more hawkish stance by either of them is going to strengthen the respective currency, whereas a more dovish stance would underpin the deficiencies of the current monetary policy, and thereby diminish the competitiveness of the currency in question.
At present, the EURUSD is nearing the major declining resistance, represented on the 4H chart below. This week's expected surge in volatility, triggered by the two monetary decisions, is likely to propel the price action in one of the ways.
The pair is either going to break out above the resistance or bounce back from it for the third consecutive time. The Stochastic RSI is already threading in the 'Overbought' extreme, which could be interpreted as indicating the likely following depreciation of the underlying bullish sentiment in the market.
EURUSD 4H Price Chart. Image source: Trendsharks ©, created with TradingView.com
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