Did the euro turn the corner?

FXstreet.com (Barcelona) - The single currency has revisited the 1.3400 handle on Friday after around 1.3370 on ‘verbal intervention’ by ECB’s Draghi on Thursday. The current correction would be sustained by renewed hopes of an agreement by the European Council on the EU Budget for the period 2014-2020

… Correction or change of direction?

After yesterday’s slap of reality by Mario Draghi, cautiousness is now prevailing amongst traders, who have seen EUR/USD free-fall from Thursday’s highs in the boundaries of 1.3580, two big figures to 1.34

Although the dovish tone out of the ECB statement was somehow expected, Draghi has once again surprised the FX community, violating his implicit mandate of avoid talking about exchange rates. This time the stab to the euro came from his warning that a high exchange rate could harm inflation figures, accelerating the already bearishness mood surrounding the euro by that time. Hi went even further when he failed to rule out the likelihood of a rate cut should the euro appreciates at a higher pace than desired.

President Draghi also seem to have come to an agreement with the real economy numbers, as he now expects the euro zone to face strong headwinds during the first half of the present year, and to recover later.

While the euro continues to debate whether to extend the actual correction higher or concentrate on a solid change of direction, further issues are at hand. The political scenario in Italy - with general elections and former PM S.Berlusconi fanning the flames – plus the snow-ball that Spanish President M.Rajoy could face in light of the allegation of receiving illegal funds within his Popular Party, would jeopardize any attempt of an upside in the very near term. This panorama adds to the US fiscal situation, as we get closer to the March 1 deadline, which would be supportive of the greenback. However, the weekly LTRO repayment announcements would prop up the single currency. As emphasized by Draghi, they represent a clear signal that the financial sector is back on the track of recovering its health.

In the medium term, however, the next stops on a potential decline in the cross would initially find the 38.2% Fibonacci retracement (November 13th lows at 1.2661 - February 1st highs at 1.3711) at 1.3316, followed by the 55-day moving average at 1.3268, 50% Fibo at 1.3194 and the area of 1.3105-1.3073, where rest the 61.8% Fibo and the 100-day moving average.

When comes to technicals, expert Karen Jones at Commerzbank commented regarding the late break above the area of 1.3485/1.3562, “We suspect that this was a false break higher, however key support remains the 1.3125 6 month uptrend and a close below here is required to negate the upmove completely”.

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