EUR USD plunges further on ECB statement

The EUR/USD (daily chart shown below) plunged further on Thursday after the European Central Bank (ECB) issued a statement during its press conference that left interest rates unchanged at record low levels, lowered its inflation and economic growth forecasts, and indicated a willingness to extend its bond purchasing program if needed.

This bearish development for the euro, coupled with a resilient US dollar on Thursday morning, brought the EUR/USD tumbling back down towards key support around the 1.1100 level. This further drop follows a sharp retreat during the past week and a half that has given back much of the gains made during the greater part of August.

Those August gains saw the currency pair surge dramatically above its 200-day moving average and key resistance levels, including the noted 1.1100 level as well as 1.1400. The surge did not end until EUR/USD climbed briefly above the 1.1650 resistance level and then began its sharp retreat.

Having dropped back down to approach the 1.1100 level on Thursday, the currency pair has also re-approached its 200-day moving average to the downside once again.

With the distinct possibility of additional ECB quantitative easing and continued low interest rates in the Eurozone, as well as the probability of an impending interest rate hike in the US, the directional bias for the EUR/USD continues to be strongly to the downside.

With any sustained breakdown below the 1.1100 level and 200-day moving average, the key downside price target for the short-term continues to reside around the 1.0800 support level, last re-tested in mid-July. On a longer-term basis, continued declines for the currency pair should target further downside support around the 1.0500-area lows. Upside resistance on any reactive rebound remains around the 1.1400 price level.