Market Analysis

Euro breaks support as President Draghi paves the way for policy action

The euro currency tumbled against the U.S Dollar on Tuesday after outgoing ECB President Mario Draghi cleared the path for more policy stimulus if the European economy fails to recover lost momentum. Speaking at the ECB forum in Sintra, Portugal, ECB President Mario Draghi said that the central bank could lower interest rates or provide further asset purchases if EU inflation continues to underperform.

The European economy has hit a rocky patch, with EU economic growth stalling, while EU inflation has persistently missed the European Central Bank’s mandated target of two per cent. Investors have also been questioning whether the recently introduced TELTRO programme was enough to stem the current economic downturn.

President Draghi’s words were also seen as a way to highlight that the ECB remains flexible and ready to act if EU growth weakens and the trade war between the United States and China continues to have a negative impact on EU growth. The ECB recently paired back its inflation expectations for 2020, after the Governing Council delivered its latest growth projections for next year.

The weaker EUR/USD exchange rate has so far had a relatively subdued impact on European exports, this indeed worrying for the ECB, given that a sub 1.1500 EUR/USD exchange rate is seen as optimal for major major European export nations, France, Germany, and Italy, who benefit from a weaker euro.

Many investors are now questioning when the ECB may decide to implement new or existing policy tools, especially given that the ECB are still assessing the impacts of the trade war between the United States and China and if indeed the latest round of trade tariffs will continue to impact European growth and global consumption.


EUR/USD Daily Mountain Chart | Source: ActivTrader

EUR/USD Daily Mountain Chart | Source: ActivTrader


The EUR/USD pair is under heavy technical selling pressure while trading below the 1.1245 level, key technical support is now located at the 1.1130 and 1.1050 levels. A breach of the 1.1245 level is now needed to prompt intraday EUR/USD strength, with the 1.1300 and 1.1355 levels the foremost upside resistance levels.


Written by Nathan Batchelor, External Analyst, ActivTrades

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