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EURUSD - Drops to Support at Key 1.10 on ECB Virus Comments



EURUSD - Drops to Support at Key 1.10 on ECB Virus Comments
In the last three days the EURUSD has fallen sharply again from the key 1.11 level back down to another key level of 1.10 where it is currently enjoying some support. The 1.10 level has propped up the currency pair several times in the last few months so it is little surprise that it is doing it again now. In the two days prior to the recent fall, the EURUSD rallied well off the support at 1.10 before running into a wall of resistance at 1.11.

For the last three weeks it has been struggling with resistance at the 1.11 level applying selling pressure and this level is highly likely to continue to play a role should the EURUSD rally again.

It was only several weeks ago that the EURUSD rallied well off the support at 1.11 level right back into the middle of its popular trading range between 1.11 and 1.12, where it has spent the best part of December / January. The EURUSD had moved strongly to close out last year and into the new year moving to a five month high near 1.1250, before easing back into the range. Throughout all of November, the EURUSD traded back and forth between 1.10 and 1.11 meeting support and resistance at these levels. Earlier in the month, it made another strong rally off the 1.10 level back to 1.11, after falling sharply from near several month highs close to 1.12.

Most of the levels including 1.10, 1.11 and 1.12 have played a significant role in the last six months or alternating between providing support and resistance. The 1.10 level provided strong support in November propping the currency pair up after the fall to start the month and on cue has been called upon again. At the start of October, the EURUSD dropped to a two year low below 1.09 and started to look precariously placed with no more obvious support levels below it, so it has done well to reverse and move as strongly as it has since then and remain above 1.10.

As is now widely known, regular updates continue about the coronavirus and how quickly it is spreading, and markets and investors around the world have been gripped by fear as a result.  According to European Central Bank (ECB) officials, China’s coronavirus outbreak is adding to global economic uncertainty but its impact may be short term and temporary.  The general feeling is that because it is disrupting the worlds second largest economy, China, so much, its effects will be felt everywhere.  “While the threat of a trade war between the United States and China appears to have receded, the coronavirus adds a new layer of uncertainty,” ECB President Christine Lagarde said in a press conference yesterday.  The ECB’s chief economist, Philip Lane believes that epidemics like this tend to have a short-term impact on growth and economies then rebound.  “We could see quite a significant impact but importantly for monetary policy - where we have a medium-term orientation - we would honestly be less concerned about temporary shocks than if this turned out to be a long-term distortion to the world economy,” Mr Lane said.  “The history of past epidemics has been that there could be a significant short-term effect of events like these, but no long-lasting effect,” Lane added, referring to the 2003 SARS outbreak.

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The information provided herein is for general informational and educational purposes only. It is not intended and should not be construed to constitute advice. If such information is acted upon by you then this should be solely at your discretion and Valutrades will not be held accountable in any way.

This post was written by Graeme Watkins

CEO Valutrades Limited, Graeme Watkins is an FX and CFD market veteran with more than 10 years experience. Key roles include management, senior systems and controls, sales, project management and operations. Graeme has help significant roles for both brokerages and technology platforms.