06.06.202223:48 Forex Analysis & Reviews: Pound accompanies Johnson. It is difficult for the euro to attract bulls ahead of the ECB meeting

The new week started optimistically for the euro. Global market sentiment has improved, fueling interest in risky assets. Traders are starting to focus on the ECB meeting, which should also add momentum to the euro's growth. But something went wrong.

It is difficult for the euro to retain interest. After reaching an intraday high of 1.0750, the EUR/USD pair fell, breaking through the round mark of 1.0700.

There is a lack of new and stable catalysts. In addition, most European markets were closed on Monday due to the celebration of the Day of the Holy Spirit. The macroeconomic calendar is empty, there are no important reports from both Europe and the United States.

At the same time, the dollar found strength and attracted bulls, despite the positive mood on the stock markets. This, in principle, became the main factor in the euro's decline.

Investor sentiment is positive, but it cannot be called stable. As a sedative at the beginning of the week there was news from China, which is lifting coronavirus restrictions. This means that in the foreseeable future, market players will be dealing with improved global macroeconomic indicators. Risk appetite is boosted by the US-discussed lifting of some duties on Chinese goods in order to ease inflation.

The EUR/USD bullish bias was short term. A serious obstacle is the level of 1.0760, followed by 1.0780, which acts as the end point of the upward trend formed in the second half of May. After closing the session above this level, bulls will have an opportunity to target the psychological level of 1.0800. The European Central Bank meeting in the coming days may act as an incentive to conquer new heights.

The first support is the level of 1.0720, which was surpassed today. This is followed by a psychological level hanging by a thread, a static level of 1.0700. Significant support lies at 1.0680 and bears are likely to show interest in such a move if the price falls further.

The bearish scenario will begin to take shape if the quote falls below the 1.0665 level, although there are no technical signs that this will happen in the upcoming sessions.

Still, the ECB meeting and its hawkish mood this week can completely absorb the markets' attention and support the euro. BofA expects the ECB to raise interest rates by 150 basis points this year, including 50 bps in July and September, according to a new note on Monday.

What's with the pound?

The pound showed quite pronounced and interesting dynamics on Monday. The British currency strengthened on political news about a vote of confidence against British Prime Minister Boris Johnson.

It is worth noting that the markets paid attention to this vote also because of the empty economic calendar. Be that as it may, the news has some weight for pound traders, who will continue to follow developments in this direction.

The vote is taking place at a difficult time for the UK. The country is hurtling towards a recession, the worst contraction in the cost of living since the 1950s and the highest inflation of any of the world's seven largest economies. A potential change of prime minister is unlikely to change the gloomy outlook for the country and the national currency, but some economists saw this as a positive.

If Johnson steps aside, his successor will try to change policy tactics to help an economy hurt by high energy prices, labor shortages and rapidly falling consumer confidence, UBS said. This will support the pound in the short term.

Not everything is so simple, whoever replaces Johnson will face the same set of problems that cannot be eliminated at the moment.

The GBP/USD pair was trading above 1.2550 on Monday, aiming for a retest of the 1.2600 level.