EUR/USD Hits Yearly Highs as ECB Unveils Post-QE Plan
By: Eddy Peng Sep 11, 2017
The Euro climbed to fresh 2017-highs against the U.S. dollar on Friday but closing with some retreats, as the European Central Bank (ECB) sticks to its current policy on Thursday. The pair is still at risk of extending the gaining momentum from earlier this month amid key data form the U.S. economy continued undermine expectations for the third Fed rate-hikes in late 2017.
Mario Draghi, the president of ECB, gave a soft euro talk in the press conference. Despite little mention of the currency’s appreciation from the ECB president’s opening statement, the euro continued rise. Aside from admitting that the exchange rate’s volatility is problematic, he declined to give any action to reverse the current course.
Evidence shows that the central bank is in no rush to remove the zero-interest rate policy as the current inflation level is still far from the target of 2.0 percent rate, meaning that loose monetary policy is still needed for building and supporting headline inflation developments in the medium term.
Even though the ECB appears to remain its present rate level for an extended period of time, it seems the Governing Council will start to wind down the quantitative easing (QE) program ahead of the December deadline.
The growing geopolitical tension over North Korea’s nuclear development already put some threats on the global financial market and inevitably dragged the U.S. dollar, which slumped in the previous week. Besides that, there was a strong storm threatening energy and agricultural markets.
Hurricane Irma has knocked out power to 2.4 million customers, paralyzed tanker traffic and shut about 6,000 gasoline stations around the Florida. Once the storm makes its way up Florida’s west coast, it’ll also threaten more than $1 billion worth of crops.
Fed Fund Futures highlight increasing expectations Chair Janet Yellen will stay on hold for the remainder of the year as inflation rate struggles to achieve the 2 percent target. The key economic data prints coming out ahead of the September 20 interest rate decision and lower expectation of rate hikes may produce headwinds for the dollar as the core CPI is projected to slowdown in August, while Retail Sales are forecasted to rise only 0.1 percent following a 0.6 percent growth in July.
Technically with no sign of showing any reversal of EUR/USD, the pair may continue to push to fresh 2017-highs as it remains its growth in an ascending price channel carried over from earlier this year. The outlook of EUR/USD remains positive in the near term with the strong weekly Relative Strength Index (RSI) of 74.7979 as of 12:20 p.m. in Sydney.
Investors should keep a close eye on the following performance ahead of the coming data for U.S. economy. In the event that the EUR/USD breaks lower, and approaches the lower channel, traders should look for more long position if it finds support on that channel; otherwise, they may look for selling it when it breaks out.
If we try to see the future trend for the near term by drawing Fibonacci retracement, there is a key resistance found at 1.21608 (50% retracement) right ahead of the current position. Chart 1: EURUSD Weekly
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