EUR/USD analysis: dovish Draghi undermined the common currency

Valeria Bednarik FXStreet

EUR/USD Current price: 1.1361

ECB: the balance of risk is moving to the downside.
December preliminary Markit PMI for the EU and the US out this Friday.

The common currency fell following the latest ECB's monetary policy meeting, as chief Draghi's words indicated that policymakers are aware that the Union's growth will continue slowing. As largely expected, the central bank put an end to QE and kept rates unchanged, revising its growth forecast to the downside for this year and the next, and remarking that the balance of risk is moving to the downside. Inflation forecasts were little changed, while wage growth was the only bright spot. The central bank also announced it will enhance its forward guidance on reinvesting, intending to reinvest in full the securities purchased under the APP "for an extended period" that could past the date of rising rates. The dovish stance weighed the EUR lower, although, with limited dollar's demand, the EUR/USD pair remained within familiar levels, and despite losing ground, it managed to post a higher high, and a higher low daily basis.

This Friday will be quite a busy day, as all of the December preliminary Markit PMI for the Union will be out, alongside with some minor figures from Germany and Spain. Growth has been the stone around the EU's neck, and worse-than-expected readings could take the EUR/USD pair below 1.1300. The US will release November Retail Sales, seen up 0.4% MoM, Industrial Production for the same month, and Markit PMI, with a modest uptick foreseen in the manufacturing sector.

The EUR/USD pair trades around 1.1350 ahead of the Asian opening, still developing within a symmetrical triangle coming from early November. The low for the day was set at 1.1330, while the daily ascendant trend line that forms the base of the figure comes at around 1.1320 for the last trading day of the week. The pair is technically neutral, having spent the week between 1.1300 and 1.1440, although the short-term picture skews the risk to the downside, as the pair settled below its moving averages, all of them converging in a tight range but with the shortest gaining downward strength, as technical indicators hold directionless within negative ground. A bullish breakout seems too far away, as the pair would need to clear the 1.1460 resistance area to turn bullish.

Support levels: 1.1320 1.1290 1.1255

Resistance levels: 1.1380 1.1425 1.1460

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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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