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Thinking of trading the ECB decision today? Here’s a simple trend setup I’m seeing on EUR/USD.

Will we see a bounce off the channel top or a break higher?

Before we look at the setup, let’s revisit the headlines and price performance during the previous trading sessions:

Major Forex Pairs Price Performance from MarketMilk
Major Forex Pairs Price Performance from MarketMilk

Upcoming Potential Catalysts on the Economic Calendar:

  • U.K. construction output and monthly GDP at 8:00 am GMT
  • ECB decision at 1:45 pm GMT
  • ECB press conference at 2:30 pm GMT
  • EU Economic Summit starts today

What to Watch: EUR/USD

EUR/USD 1-hour Forex Chart
EUR/USD 1-hour Forex Chart

This pair is still cruising south inside a falling channel on the 1-hour time frame, and it looks like a test of resistance is underway.

Euro bears could defend this level, which happens to line up with the 61.8% Fib and an area of interest around 1.2115. However, technical indicators suggest that bulls might have enough energy for a break higher and reversal.

The 100 SMA is above the 200 SMA to signal that resistance is more likely to break than to hold while Stochastic has plenty of room to climb before indicating exhaustion among buyers.

It could all come down to the ECB decision, which is expected to result in a much larger stimulus package for the region. Word through the forex grapevine is that officials could expand the PEPP by at least 500 billion EUR and extend its duration until late next year or even 2022.

A smaller boost could be bearish for the shared currency as it would undermine traders’ confidence that the economy could recover from the pandemic.

Keep in mind that Brexit negotiations are still hitting a snag on the fisheries issues, forcing European Commission President von der Leyen to give an ultimatum until the end of the week. The lack of any compromise could keep dragging European currencies south as it would keep uncertainty in play.