EUR/USD tentatively resumes bearish stance on Draghi comments

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.

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account