EUR/USD short-covering may dominate ahead of the June 14 ECB meeting with potential to boost the pair as high as 1.1962, though gains beyond 1.2000 seem unlikely.
The June ECB meeting is on the market's radar after ECB chief economist Praet said today policymakers will debate ending its bond purchases, lifting EUR/USD nL5N1T80ZK.
Recent euro weakness and a pickup in inflation is boosting the chance of a more hawkish spin from the ECB, prompting some of those short EUR/USD to start covering positions.
With EUR 7.5 billion shorts added in May alone, the likelihood of EUR/USD being well supported in early June is high and a close over the 21-DMA at 1.1753 may prompt a rally towards 1.1855 or 1.1962, 38.2/50% retracements of April-May 1.2414-1.1510 drop.
It would take a rally over May's peak at 1.2084 to really rattle EUR/USD bears and with the 200-DMA at 1.2012 and notable option interests around 1.2000-1.2100, that's unlikely.
Failure to close over the 21-DMA suggests a strong test of 1.14-1.15.
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