|

EUR/USD Forecast: 3 reasons for the rally, including a non-dovish Draghi, levels to watch

  • The ECB sees risks as balanced and did not cut inflation forecasts. 
  • The EUR/USD got a boost also from Turkey and weak US inflation.
  • The pair eyes levels last seen in July and August. 

The EUR/USD is trading at new highs for September, around 1.1670. ECB President Mario Draghi is the primary driver of the common currency to higher ground. In the previous five press conferences, Draghi pushed the Euro lower. 

How is Draghi different this time?

1) Super Mario

The ECB left the inflation forecasts unchanged for 2018, 2019, and 2020. This is surprising given the small downgrade in GDP and the recent disappointment in August's inflation numbers.

Draghi also called risks as balanced. He also said there was a discussion about changing the assessment to "downside risks." 

Another positive is that the central banker says that there are upside risks from not-so-neutral fiscal policies. Also, an improvement in the labor market and also in wages.

The ECB decision comes on the eve of QE tapering. The Frankfurt-based institution is about to cut its bond-buying program from €30 to €15 billion in October and plans to stop buying bonds in 2019.

While Draghi did talk about protectionism, referring to Trump's tariffs, the language has not materially changed from previous statements. 

2) Turkish mega-rate hike

The Central Bank of the Republic of Turkey defied the President and hiked rated by 625 basis points to a whopping 24%. This topped market expectations for 21% or 22% and came against a speech by the President just two hours before the decision. It is still to be seen if the CBRT will be bold and remain independent.

The euro-zone is exposed to Turkey via close trade ties. Also, the ECB was concerned about three major euro-zone banks when the crisis erupted. The sharp rate hike in Ankara also helped the common currency, pushing the EUR/USD a bit higher.

3) Weak US inflation

After several months of gradual increases, the US Consumer Price Index disappointed with 2.2% Core CPI YoY. Other measures also came out below expectations. While the data will not stop the Federal Reserve from raising rates in two weeks time, it may bring the Fed closer to a pause. The interest rate is becoming neutral, close to the level of inflation. Under these circumstances, the Fed is unlikely to tighten much further.

FXStreet Expert Joseph Trevisani says:

The unexpected drop in US CPI in August undermines the supposed consumer price effect from tariffs. Lower than anticipated US inflation in August, while marginally weakening the Dollar, will have no effect on the Fed's two pending rate hikes

The US Dollar tumbled down across the board on the news, driving the EUR/USD higher as well.

EUR/USD levels

EURUSD technical analysis Draghi pushes it higher

1.1695 was the peak back in late August and is the first line to watch. The August high of 1.1735 is the next level on the charts. Close by; we see the quadruple top of 1.1750 that capped the pair in July. Even higher, 1.1850 was the peak the EUR/USD reached on June 14th, before Draghi sent it tumbling down.

The previous September high of 1.1660 is now a line of support. Further down, 1.1600 is a round number and served as a magnet. 1.1565 was the trough earlier int he week. 1.1530 is a triple bottom.

More: EUR/USD Analysis: EUR gains as Draghi speaks, US inflation misses

Author

Yohay Elam

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

More from Yohay Elam
Share:

Markets move fast. We move first.

Orange Juice Newsletter brings you expert driven insights - not headlines. Every day on your inbox.

By subscribing you agree to our Terms and conditions.

Editor's Picks

EUR/USD rebounds after falling toward 1.1700

EUR/USD gains traction and trades above 1.1730 in the American session, looking to end the week virtually unchanged. The bullish opening in Wall Street makes it difficult for the US Dollar to preserve its recovery momentum and helps the pair rebound heading into the weekend.

GBP/USD steadies below 1.3400 as traders assess BoE policy outlook

Following Thursday's volatile session, GBP/USD moves sideways below 1.3400 on Friday. Investors reassess the Bank of England's policy oıtlook after the MPC decided to cut the interest rate by 25 bps by a slim margin. Meanwhile, the improving risk mood helps the pair hold its ground.

Gold stays below $4,350, looks to post small weekly gains

Gold struggles to gather recovery momentum and stays below $4,350 in the second half of the day on Friday, as the benchmark 10-year US Treasury bond yield edges higher. Nevertheless, the precious metal remains on track to end the week with modest gains as markets gear up for the holiday season.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid bearish market conditions

Bitcoin (BTC) is edging higher, trading above $88,000 at the time of writing on Monday. Altcoins, including Ethereum (ETH) and Ripple (XRP), are following in BTC’s footsteps, experiencing relief rebounds following a volatile week.

How much can one month of soft inflation change the Fed’s mind?

One month of softer inflation data is rarely enough to shift Federal Reserve policy on its own, but in a market highly sensitive to every data point, even a single reading can reshape expectations. November’s inflation report offered a welcome sign of cooling price pressures. 

XRP rebounds amid ETF inflows and declining retail demand demand

XRP rebounds as bulls target a short-term breakout above $2.00 on Friday. XRP ETFs record the highest inflow since December 8, signaling growing institutional appetite.