Given the significance of the 1.13 level, this is likely to offer some support should the EURUSD decline from its current highs. A sign of strength would be for the EURUSD to continue to consolidate under the key 1.19 level and then potentially push higher again.
On its way to the then three month high above 1.14, the EURUSD moved through many key levels on its way, many of which have previously played a role in the EURUSD’s price action, including the 1.10 level which had been offering stiff resistance on several occasions throughout April and May. Throughout the first half of this year the 1.0750 level offered solid support, as the EURUSD did well to consolidate in a range between 1.0750 and 1.10, having previously dropped surged back higher from a three year low near 1.06 to up above the key 1.11 level in the second half of May, before easing back below 1.10 again.
The EURUSD could have been expected to experience some resistance from the previous peak around 1.15 from early March, and the fact that it surged right through that level bodes well for the strength of the current move. In the middle of March the EURUSD fell sharply from its highest level in more than 12 months above 1.15 down to near 1.06 before rallying strongly in the week after, before easing below 1.10 in early April. Before the fall from 1.15, it had moved very strongly from a then three year low around 1.08.
Europe has fallen a long way short of the European Central Bank's (ECB) mandate of keeping “inflation rates below, but close to, 2% over the medium term.” A flash reading earlier in the week revealed that annual headline inflation is expected to come in at -0.2% in August, down from 0.4% in July. On this data, many analysts believe the ECB will be forced to take further action to contain the impact of the coronavirus pandemic on the euro zone. This should have come as no surprise to the central bank, as the ECB announced in June that it was expecting low inflation figures for the next two years, however the data now challenges the bank’s baseline inflation scenario and those estimates. Many analysts now expect the ECB to adjust its stimulus policy in the next few months and lower its forecasts, which is it expected to update next week.In response to the coronavirus impact, the ECB launched a more flexible program of government bond purchases, and expanded its overall size 1.35 trillion euros, which is set to be in place at least until June 2021. Many analysts now expect more stimulus before the end of the year.
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