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EURUSD - Falls Below 1.10 as ECB Tries to Stem Virus Damage



EURUSD - Falls Below 1.10 as ECB Tries to Stem Virus Damage
In the last two weeks the EURUSD has fallen sharply from its highest level in more than 12 months above 1.15 down to 1.08 before rallying in the last 24 hours. The EURUSD has been on a rollercoaster in the last few weeks as it had only just recently rallied strongly back into one of its favourite trading ranges between 1.11 and 1.12 before continuing even higher. The EURUSD fell to a three year low before its recent rally, although it got close to falling lower in the last 24 hours.

After having traded in a wide range generally between 1.10 and 1.12 for an extended period, this latest break lower, rally higher and then sudden drop is significant with volatility increasing as well. The 1.10 level has propped up the currency pair several times in the last few months however it failed on this occasion such was the strength of the recent drop.

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 however is now likely to offer some resistance should the EURUSD rally.

Considering the U.S. Federal Reserve (Fed) cutting its benchmark interest rate by 50 basis points, the European Central Bank (ECB) also announced stimulus measures however would have disappointed those expecting a rate cut.  Last week the ECB agreed on an additional 120 billion euros worth of debt purchases before the end of the year.  "The interventions are flexible both in timing and in terms of concerned markets and will continue for as long as necessary,” a Bank of Italy source said.  “The ECB is ready to do everything in its mandate to counter market turmoil that disrupts monetary policy transmission, otherwise monetary policy cannot function,” ECB board member Isabel Schnabel said in an interview.  Previously, ECB President Christine Lagarde said, “the coronavirus outbreak is a fast developing situation, which creates risks for the economic outlook and the functioning of financial markets” in a statement.  She added that the ECB is “monitoring” the situation and that it stands ready “to take appropriate and targeted measures.”  She has recently added that the outbreak “has been a major shock to the growth prospects of the global and euro area economies.”

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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.