fxs_header_sponsor_anchor

Analysis

ECB Meeting: Draghi vs. The Market wrestling, who will win?

Up for six months in-a-row and at its highest since January 2015, half of EUR/USD's rally has been based on dollar's weakness, but the other half has been the result of speculation that the ECB will trim its QE program this year. Speculation on the matter grew amid an optimistic Draghi and rising inflation, anyway still below the ECB's target of "close to, but below 2.0%." Encouraging growth figures, with manufacturing and services indexes steady at six year highs since the end of the first quarter, backed the case of less monetary facilities needed in Euro-land.

Confidence in a brighter future for the region coupled with a gloomy one for the US, as data began to soften, particularly inflation, erasing chances of a fourth rate hike in the US and reducing substantially chances of the third one promised last year. Not to mention, Trump's administration is doing little progress, or better said, none, when it comes to growth measures.

ECB's head Draghi has sounded optimistic meeting after meeting, but warned about the risk of retrieving QE and cheered the positive effects it has in the economy. The market, however, ignored the cautious side of its speech, and rushed to price in upcoming tapering since last March, and even forced Draghi to set a date in the July meeting, when the press persistently asked and got his word that policymakers will discuss the issue "during the fall."

Delaying tapering is not a matter of not trusting in the economic recovery, it is a matter of "a too-strong EUR". As it expensive its gets, the slowest will be the achievement of the central bank's target. Draghi doesn’t want a stronger EUR and there's little he could do about it, as his attempts to down talk the currency have been worthless. A good example of this is what happened by the end of last week, when the pair hit 1.2070, and big news' agencies rushed to report that the ECB will likely discuss tapering in December, "according to people familiar with the matter."

Headlines had a partial effect, as the pair is anyway retaining its bullish long-term trend. Clearly, no change is expected to be implemented in this September meeting, but the market will be looking for hints on the ECB's strategy for eventually winding down its asset purchase program. As said above, Draghi & Co. don't want a strengthening EUR, so chances of big announcements this Thursday are limited. Anyway, the common currency may take just the mildest positive comment to hold on to hopes of upcoming tightening, and send it higher.

EUR/USD levels to watch        

   

The EUR/USD pair trades with a modest positive tone this week, up by some 80 pips from Friday's close, neutral according to the daily chart, but positive, amid the price holding above all of its moving averages and with the shortest providing support since mid August, currently around 1.1850, while last week's low stands at 1.1822, this last the key support in the case of EUR's weakness, as, as long as the price remains above it, chances of a trend change are pretty much null. In fact, as long as it holds above that daily ascendant trend line coming from early April's low at 1.0603, now around 1.1750, bears will have little saying on the pair. Below the mentioned low of 1.1822, 1.1780 and 1.1740 are the next level to watch on persistent EUR's weakness over the following sessions. To the upside, an intermediate resistance comes at 1.1960, with an upward acceleration through the level exposing the 1.2000/20 region, en route for a retest of this year high of 1.2070.

 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.


RELATED CONTENT

Loading ...



Copyright © 2024 FOREXSTREET S.L., All rights reserved.