Date: 26 Jul 2019

The euro currency rebounded and European equity markets ended lower on the day after the European Central Bank failed to cut interest rates on Thursday or implement a new monetary easing package. The EUR/USD fell to a new multi-year trading low after the ECB monetary policy statement, but the pair quickly rebounded as it became clear that the ECB was still not ready to implement QE.

A number of dovish sound bites from ECB President Mario Draghi failed to push the EUR/USD under the 1.1100 level, including the admission from President Draghi that eurozone inflation is getting ‘weaker and weaker’. The main takeaway from the ECB press conference was that the European Central Bank are designing a stimulus package and two-tiered rate system, but are not yet ready to act.

The main contention for financial markets is once again timing, and can the ECB afford truly to wait until at least September, as European growth prospects dwindle. The admission that further rate cuts are certainly coming down-the-road is certainly negative for the euro currency, although it may not be enough to push the value of the euro down significantly without QE attached.
Growth forecasts for the third and fourth quarter of this year were also lowered, although ECB President Mario Draghi did have some positive words about eurozone unemployment. The outgoing ECB President noted that despite downside risks increasing, unemployment across Europe continues to fall sharply.

The main risk for EUR/USD bears will be if we see a rebound in eurozone manufacturing activity and inflation before September, this seems unlikely unless a resolution to the trade dispute between the United States and China is found and oil prices rise significantly. The euro currency could continue to squeeze higher against the greenback until a sense of urgency comes from ECB policymakers.

 

EUR/USD Candle Chart | Source: ActivTrader

EUR/USD Candle Chart | Source: ActivTrader

 

The EUR/USD pair bounced sharply from the 1.1100 level on Thursday, although bulls have so far met a wall of technical selling from the 1.1187 resistance level. A move below the 1.1100 level exposes a test of the 1.1050 support zone, while a move above the 1.1187 level could provoke a solid test of the 1.1215 resistance zone.

 

Written by Nathan Batchelor, External Analyst, ActivTrades

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