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 Friday 22 January 2016

PM Bulletin: EURUSD chart

 

 


Yesterday’s ECB statement and Mario Draghi’s subsequent press conference really put the cat amongst the pigeons. The central bank’s decision to keep rates unchanged was expected. But there was a sharp reaction to the overall dovishness of the ECB’s statement and Mario Draghi’s press conference. Mr Draghi said that interest rates would stay at current levels or below for an extended period. He cited concerns over the economic and geopolitical situation and the fact that downside risks have increased since the beginning of the year, with heightened uncertainty over China and other emerging markets. Crucially, he said that the council would review and possibly reconsider its monetary policy stance at the next meeting in March.


While the ECB’s statement of intent has hit the euro it has also got investors thinking about how other central banks will react. After all, the ECB’s concerns are common to all developed world central banks to some degree or other. The Bank of Japan is already making dovish coos. Is it possible that the US Federal Reserve could now turn up the rhetoric and attempt to tune down rate hike expectations for the rest of this year? If so, it could be that Goldman Sachs’ call today for the EURUSD to head to 0.9500 over the next twelve months is overly pessimistic for the single currency. Just last week ex-Fed Chairman Ben Bernanke said, "Much of the appreciation in the dollar may have already happened - we may not see much more."

Ahead of the ECB statement the EURUSD was testing resistance at 1.0980 (the 38.2% Fibonacci Retracement of the August-December 2015 sell-off). Now it’s testing support around 1.0800 which is the 23.6% retracement of the same move. A break below here suggests a retest of the December low is on the cards. Otherwise, we could see a return of the old range-trade. 


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Spread Co is an execution only service provider. The material on this page is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by Spread Co Ltd or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

 

Posted by David Morrison

Tagged: Bulletin PM

Category: PM Bulletin


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