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EURUSD - Resistance at 1.19 Stands Tall after Inflation Data

   

 

EURUSD - Resistance at 1.19 Stands Tall after Inflation Data
 
In the last week or so the EURUSD has made another strong run at the key resistance level at 1.19 and reached a two year high above 1.19 as a result, however it has reversed strongly in the last few days after meeting solid selling pressure. The 1.19 level has been resisting prices for the last month now as the EURUSD consolidates in a range between 1.17 and 1.19, with the former level offering support. In the few weeks leading up to the recent highs, the EURUSD surged higher strongly after meeting some resistance at 1.13 for several weeks, as it was trading between support at 1.12 and the resistance at 1.13 consolidating there for several weeks. This consolidation occurred after easing from a then three month high above 1.14.

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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Disclaimer:

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.

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