After a dull beginning of the week for the EUR/USD pair, it finally sky rocketed to its highest in almost a month, after the ECB pulled out a series of measures to boost inflation and growth. Investors were expecting a 10-15bp deposit rate cut, and maybe an extension of QE, but they were caught off guard when the main rate benchmark was cut to 0.00%, and four new TLTRO's were offered, alongside with QE being extended to €80bn a month starting next April and the deposit rate slashed to -0.4%.
The EUR/USD began to shed ground with the announcement, but all of a sudden advanced near 500 pips, on Draghi's wording about further rate cuts. The ECB's head showed that the Central Bank is concerned about cutting further, and therefore harming local banks, and said that the Government Council sees no need for further rate cuts.
But why the market reacted that way? well, mostly because it believes that Draghi has wasted all of its bullets, and that this measures have proved insufficient during the past two years, and therefore, will do little for the economic future of the EU. Nevertheless, market overreacted to the news.
View the Live chart of the EUR/USD
Now that the dust settled, and all eyes turns towards the US Federal Reserve meeting next Wednesday, market´s participants seem to have changed their minds and consider that ECB measures are not that bad after all. Also, the FED is expected to remain on-hold this year, which means that there's little interest of buying the greenback, and that the currency will remain subdue. Unless of course, the FED also pulls something out its sleeve, but who knows?
In the meantime, the pair seems poised to end the week above the 1.1100 figure, also the 50% retracement of its latest bearish move. The technical indicators have advanced beyond their mid-lines, but lost upward strength, indicating limited upward strength at the time being, but far from suggesting a downward move ahead. Additionally, the pair has managed to recover above its 200 DMA that has been capping the upside for most of the past two weeks. In the weekly chart, there's a general positive tone, with the price above its 20 SMA and the technical indicators within positive territory, but there's no clear upward momentum either.
The immediate resistance comes at 1.1240/60, a price zone in where the price has meet selling interest plenty of times during 2015. Should the price extend beyond it on a dovish FED, 1.1460 is the probable bullish target for the next week, the level that capped the upside for most of the past year. Below 1.1000 on the other hand, the risk turns towards the downside, with scope to test the 1.0800/40 region, a major static support level.
Latest updates on the EUR/USD Forecast
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