EURUSD – 1.25+ gains or stronger dip? Mario Draghi could give an answer
The Euro remains firm on Thursday and hit new high at 1.2459, the highest since mid-Dec 2014, in extension of strong rally on Wednesday when the single currency surged on significantly weaker dollar.
The greenback fell sharply across the board on Wednesday after US Treasury secretary Steven Mnuchin welcomed weaker US currency on his speech at World Economic Forum in Davos.
This could be seen as continuation of the general monetary policy of Trump’s administration which favored weaker dollar even from the presidential campaign, signaling shift from the traditional policy which was adopted in late 1990’s.
The Euro rallied strongly against US dollar on Wednesday and broke two round-figure barriers (1.2300 and 1.2400), focusing 1.25 zone (1.2514 is high of 17 Dec 2014), with extended gains to look for test of next key barrier at 1.2597 (Fibo 61.8% of larger 1.3992/1.0340 descend).
The Euro eased at the beginning of European session, with dips being so far contained at 1.2400 support zone.
Overbought daily studies warn of corrective action, but lacking firmer signals as indicators are still pointing higher in deeply overbought territory.
Immediate focus turns towards ECB’s policy meeting, due later today, with traders awaiting for reaction of ECB’s President Mario Draghi on rapidly appreciating Euro.
Obviously, the central bank is not happy with strong currency and Draghi will likely try to curb Euro’s strength. But his position became much more difficult after Mnuchin’s comments and a tough job is awaiting ECB’s chief today.
Strengthening EU economy could be seen as initial signal for rate hike in the near future, but Draghi will need to pour cold water on this idea today and downplay the prospect of early monetary policy normalization in order to curb Euro’s strength.
Draghi’s verbal intervention today is something that markets are expecting.
The Euro could dip to 1.23 zone (rising daily Tenkan-sen lies at 1.2312 and rising 10SMA at 1.2273) where dips should be ideally contained.
However, stronger pullback cannot be ruled out (depending on Draghi’s wording on his press conference) and such scenario would risk extension towards next key supports at 1.2165/36 (18 Jan trough / rising 20SMA).
Break here would generate stronger bearish signal for deeper correction.
Res: 1.2459; 1.2500; 1.2514; 1.2597
Sup: 1.2384; 1.2323; 1.2312; 1.2273