EUR/USD tentatively resumes bearish stance on Draghi comments
James Chen January 21, 2016 11:22 PM
<p>EUR/USD resumed a more bearish stance on Thursday morning after European Central Bank (ECB) President Mario Draghi held a press conference during which he made […]</p>
EUR/USD resumed a more bearish stance on Thursday morning after European Central Bank (ECB) President Mario Draghi held a press conference during which he made some rather dovish comments. These comments hinted that the ECB may adopt a more aggressive easing stance and potentially lower interest rates due to a weak inflation outlook and a host of global economic risk factors that have recently arisen. Draghi stressed that the ECB would be ready and willing to act, if warranted, by implementing the many tools at its disposal.
The ECB press conference initially prompted a substantial rise for global equities and a sharp drop for the euro against most other major currencies before it pared some of those losses later in the day.
The EUR/USD currency pair, which has essentially been consolidating in a relatively tight trading range since its rise back above the key 1.0800 level in early December, initially fell back down to that 1.0800 level on Thursday after the press conference. This drop was helped along by a moderately stronger dollar.
While there has arisen increasing uncertainty over the viability of the US Federal Reserve’s own monetary tightening cycle given recent adverse events in the global financial markets since the beginning of the year, the broad market expectation at the moment is that there should still be further Fed rate hikes going forward. This is despite recently surfacing doubts regarding the timing and pace of those future hikes. With an increasingly dovish ECB set in stark contrast to this potential Fed tightening cycle, the longer-term bias for EUR/USD continues to be bearish in line with the well-established long-term downtrend for the currency pair.
Although a breakdown below the noted 1.0800 key support level occurred within the first few trading days of the year, that drop resulted in a swift rebound back above 1.0800. With any sustained re-break below this level, the next major target remains at the major 1.0500 support level, last re-approached in early December. Further to the downside, any confirmed continuation of the downtrend momentum should then begin to target the 1.0200 support level.
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.