EUR/USD tentatively resumes bearish stance on Draghi comments
James Chen, CMT January 21, 2016 1:30 PM
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.
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