EUR/USD: 12th week of declines

EUR/USD fell for 12th week in a row.

The meeting of the European Central Bank wasn’t a big market mover. President Mario Draghi said only that the ECB will start purchasing covered bonds in the middle of October, while ABS will be bought from Q4. The ECB gave no estimates of the size of this private debt purchasing programs, but said that they will last at least 2 years.

On the one hand, many market players doubt that the ECB will manage to expand its balance sheet enough to weaken the currency. This provided support to EUR/USD. On the other hand, some traders are worried that if the measures, which have already been announced, don’t work, the ECB will have to do a full-blown QE in future. This is keeping euro under pressure. So, the situation remains uncertain.

The fundamentals in the euro area are still weak and weaker than in the US. Inflation in the region experienced further decline in September: the headline reading fell to 0.3%, while the core figure declined to 0.7%. Draghi confirmed that the medium-term inflation outlook worsened. The US, on the contrary, showed an improving labor market.

As a result, the outlook for the pair remains bearish. Note that EUR/USD approached $1.2500 (74.6% Fibo of the advance from 2012-2014). This level may provide some support ahead of $1.2460 and $1.2400. Resistance is at $1.2660 and $1.2750. We’ll close out medium-term short position at $1.2500 and will sell on recoveries. The main event in the euro area’s economic calendar next week is Mario Draghi’s speech on Thursday.


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