EUR/USD: Dead cat bounce ahead of ECB decision?

• Bounce to fade near 1.2200 on firmer DXY and USTs.
• 1.2000 on cards on Draghi’s dovish tone and Eurozone growth concerns?

The EUR/USD pair attempted a tepid recovery from eight-week lows at 1.2160 in the Asian trades this Thursday, but the bulls appear to lack momentum heading into the European Central Bank (ECB) monetary policy decision due later today at 1145 GMT.

Despite the bounce, the spot remains capped below the 1.22 handle, with downside risks still in place amid the ongoing rally in Treasury yields, which continues to keep the USD bulls on the front foot.

The rise in the US dollar across the board in sync with Treasury yields can be mainly attributed to the divergence in the monetary policy outlooks between the Fed and rest of the global central banks, with the odds of a June Fed rate hike now standing at 93%.

All eyes on ECB

Later today, the focus remains on the ECB policy announcement and Draghi’s presser, with markets expecting the ECB to make no changes to its monetary policy settings. The common currency is expected to meet fresh supply if Draghi talks down the Euro area growth and inflation outlook.

Kathy Lien, Managing Director at BK Asset Management, notes: “We think Draghi will remain cautious and emphasize patience, which in an environment of a rising U.S. dollar could send EUR/USD down to 1.21 and eventually 1.20. However if the tone of his press conference is a bit more optimistic, EUR/USD could bounce back up to 1.23.”

Also, of note remains the US durable goods data and Trump’s comments due to be delivered in an interview at 1200 GMT.

EUR/USD levels to watch

FXStreet’s Chief Analyst, Valeria Bednarik explains: “In the short term, the risk is clearly skewed to the downside, as a second attempt to regain ground above the broken trend line resulted in a lower low. In the  4 hours chart, the 20 SMA maintains its strong downward slope, currently at around 1.2225, while technical indicators are attempting to recover ground, but remain below previous high and with the RSI still in oversold territory, hardly enough to anticipate a recovery. Support levels: 1.2160 1.2130 1.2100. Resistance levels: 1.2225 1.2260 1.2295.”