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EURUSD - Looking for Support From 1.13 as ECB Hamstrung by Draghi Departure



EURUSD - Looking for Support From 1.13 as ECB Hamstrung by Draghi Departure
In the last week or so the EURUSD has met resistance at 1.15 and been sold off again as it maintains it trading range between 1.13 and 1.15. Only a couple of weeks ago the EURUSD enjoyed rock solid support from the key 1.13 level and subsequently surged higher back towards 1.15. Several weeks ago it did hit a three month high near 1.1570 before being sold off. For the last few months now the EURUSD has been content to trade within a narrow range enjoying support from 1.13 and meeting resistance at the 1.15 level.

It is interesting to note that its recent excursion above 1.15 didn’t last long as it was quickly sold down at those three month highs. The 1.13 level has also become quite significant of late, and even though it has fallen through this level a few times, it was quickly pushed higher through strong buying which will provide some confidence that the 1.13 level will provide strong support should the EURUSD attempt to decline again.

After dropping through the 1.13 level near mid-November, the EURUSD did well to rally higher from its lowest levels in 16 months back up towards 1.15 before easing in the week afterwards. Likewise the 1.15 level has become key of late providing stiff resistance and looming above ready to push prices lower.

Towards the end of October the EURUSD did well to surge higher off support at the key 1.13 level after having fallen strongly over the last few weeks from above 1.16. Only several weeks earlier the EURUSD fell strongly from multi month highs above 1.18 down to the key support level at 1.15. In the second half of August the EURUSD rallied strongly as it recovered from a 12 month low at 1.13. In early June the EURUSD rallied well and moved back above 1.18 before it experienced a sharp drop down to a near 12 month low just above 1.15.

The President of the European Central Bank (ECB) Mario Draghi is due to leave his office later this year on 31st October, and some unnamed sources from within the ECB have hinted at a problem in providing forward guidance on rates.  The markets have pushed back their expectations for when the ECB will raise rates for the first time since 2011, to around mid-2020 at the earliest, well after Draghi leaves office in October.  However there is a perception that if any ECB officials offer rate guidance this year, the incoming ECB President may be obliged to stick with them.  Therefore some ECB policymakers are reluctant to alter their guidance on interest rates this year.  “Not knowing who is the next president is very much the reason for our hesitation,” one of the sources, all of whom asked not to be named, told Reuters.  “Normally it wouldn’t be an issue but Draghi is such a powerful personality, it becomes quite difficult to commit beyond his term.”  Draghi’s successor is likely to be named only after the European elections in late May and the front-runners are Bundesbank president Jens Weidmann and French central bank chief Francois Villeroy de Galhau.

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