Currency Analyst since 2010

EUR/USD: Scenario for the Weak Ahead

 By Elizabeth Belugina

If any of you are following economic or so-called fundamental news for the euro area, you should know that the recent volatility in EUR/USD was caused by the comments of the European Central Bank’s President Mario Draghi. Let’s now try to understand what his words really mean for the European currency.

If we compare 2 central banks, the ECB and the US Federal Reserve, we will see that the ECB has a policy of low interest rates and other measures which aims to promote inflation in the euro area and make the EUR cheaper. The Fed also had the similar policy for the long period of time, but in December it started to raise interest rates. All things equal, such difference in actions of central banks should have make EUR/USD decline, and many economists forecasted the pair to fall to the level of 1 euro per dollar since the middle of last year. However, this is not what is happening: EUR/USD is trading around 1.1300.

The thing is that traders don’t expect neither the ECB to make its policy even more loose, not the Fed to increase rates in April. That’s why EUR/USD was so resilient. Mario Draghi also sounded very balanced and didn’t give the EUR neither great strength, nor great weakness.

Technically EUR/USD has strong resistance in the 1.1375/90 area: several attempts to overcome this obstacle have failed. As a result, a dip below 1.1250 to 1.1185, 1.1140 and 1.1060 is likely. Then, however, the pair should find some support and recover as the US dollar still isn’t strong enough to make the pair decline more.

As for the euro area’s economic calendar, watch German retail sales and Ifo business climate index on Monday and inflation and unemployment change on Thursday. On Friday there will be a release of inflation figures for the entire euro area. 

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