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The euro could see a round of increased volatility with tomorrow’s European Central Bank statement. We’re checking out EUR/USD for potential setups, both bullish and bearish depending on what the ECB says tomorrow.

Before moving on, ICYMI, today’s Daily U.S. Session Watchlist looked at a potential setup on USD/CAD ahead of the BOC statement, so be sure to check that out to see if there is still a potential play!

Intermarket Update:

Equity Markets Bond Yields Commodities & Crypto
DAX: 15195.97 +0.44%
FTSE: 6895.29 +0.52%
S&P 500: 4173.42 +0.93%
NASDAQ: 13950.22 +1.19%
US 10-YR: 1.554% -0.008
Bund 10-YR: -0.267% -0.007
UK 10-YR: 0.741% 0.00
JPN 10-YR: 0.075% -0.011
Oil: 61.05 -2.58%
Gold: 1,795.10 +0.93%
Bitcoin: $55,072.00 -2.75%
Ethereum: $2,410.70 +3.59%

Fresh Market Headlines & Economic Data:

Dow closes 300 points higher to snap a 2-day drop, small caps jump more than 2%

Bank of Canada becomes the first to signal stimulus exit

Bank of Canada sees economic slack absorbed in H2 2022, sooner than expected

Weekly U.S. mortgage demand jumps 8.6% after interest rates fall to a two-month low

France ‘to start easing Covid-19 travel restrictions in May

Surprise crude build pushes oil prices down

UK inflation rises to 0.7% in March as clothing and fuel prices grow

Upcoming Potential Catalysts on the Economic Calendar

Swiss Trade Balance at 2:00 am GMT (Apr. 22)
France Business Confidence at 6:45 am GMT (Apr. 22)
Italy Industrial Sales at 8:00 am GMT (Apr. 22)
Euro Area Government Budget & Debt to GDP at 9:00 am GMT (Apr. 22)
U.K. Business Optimism Index, Industrial Trend Orders at 6:00 am GMT (Apr. 22)
European Central Bank Monetary Policy Statement at 7:45 am GMT (Apr. 22)

What to Watch: EUR/USD

EUR/USD 1-Hour Forex Chart
EUR/USD 1-Hour Forex Chart

On the hour chart above of EUR/USD, we can see a solid short-term uptrend over the past couple of weeks, but that could change quickly with the latest monetary policy from the European Central Bank coming soon.

Tomorrow at 12:45 pm GMT, the European Central Bank is expected to not make any changes to current policy as they will likely remain in wait-and-see mode after already increasing their support for the economy at their last monetary policy meeting.

And with Europe experiencing rising covid cases, this will likely be enough to keep the ECB cautious and refraining from even considering reducing stimulus measures for now.

The odds are not in favor of a bullish reaction in the euro tomorrow, and if we do see some selling before/after the event, EUR/USD is a market to consider among the major euro pairs for a medium-term trade idea.

EUR/USD has been on a tear higher recently, and according to MarketMilk,  overbought across several indicators on the longer timeframes. So unless we get a massively optimistic statement from the ECB tomorrow, there is a chance of some technical selling for profit taking and/or mean reversion positioning.

Of course, global risk sentiment is also a factor to consider, and shorting EUR/USD makes even more sense if we see traders get defensive in the equities / commodities markets (or a rise in U.S. Treasury yields), which tends to benefit the U.S. dollar in risk-off environments.

For those who are bullish on EUR/USD, then a dip could present a buying opportunity, and a retest/bullish reversal patterns at the rising ‘lows’ pattern is something to watch out for if the ECB event turns out to be a volatility dud and/or global risk sentiment leans positive on the session.