EUR/USD analysis: Central Banks' imbalances back in play

Valeria Bednarik FXStreet

EUR/USD Current price: 1.0680

The EUR/USD pair closed the day marginally lower in the 1.0620 region, weighed mostly by the ECB´s latest monetary policy announcement. Mario Draghi offered a quite dovish statement, unimpressed by the up-tick in inflation from last December, acknowledging that it was mainly driven by rising energy prices. After keeping the ongoing policy unchanged, the statement accompanying the decision showed that policy makers believe that risk remains towards the downside, and that QE could be extended "if the outlook becomes less favorable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation." The ECB's stance contrast with FED's hawkish stance, reinforced by comments coming from Janet Yellen late Wednesday and US data released this Thursday.

According to official releases, US weekly jobless claim fell to their lowest since November 1973, down to 234K in the week ending January 13. The Philadelphia Manufacturing Index came in at 23.6 for January from previous 21.5, while Housing Starts advanced in December to 1.226M alongside with Building Permits, although these lasts, rose by 1.210M, less-than-expected.

The EUR/USD pair fell down to 1.0588 as an immediate reaction, but managed to bounce back afterwards, unable however to regain the 1.0650 level. Despite ongoing dollar's weakness amid political uncertainty linked to upcoming Trump´s policy, the case for a bullish EUR has suffered a major setback this Thursday, as Central Bank imbalances have become more evident. Still, and from a technical point of view, the pair needs at least to break below 1.0565, the 23.6% retracement of the November/January decline to get closed to resume its slide. In the 4 hours chart, the price has broken below a bullish 20 SMA, the Momentum indicator heads south within negative territory, whilst the RSI indicator consolidates around 46, increasing chances of a downward continuation for this Friday.

Support levels: 1.0650 1.0610 1.0565

Resistance levels: 1.0710 1.0750 1.0800

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Author

Valeria Bednarik

FXStreet

Valeria Bednarik was born and lives in Buenos Aires, Argentina. Her passion for math and numbers pushed her into studying economics in her younger years.

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