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EURUSD - Runs into Wall of Resistance at 1.17



EURUSD - Runs into Wall of Resistance at 1.17
In the last couple of weeks the EURUSD rallied strongly to back above the key 1.15 and then through to a four week high just above 1.17. However it is at this key level that the EURUSD has yet again run into a wall of selling pushing the currency pair lower again. The recent rally was timely after the EURUSD had dropped to a 12 month low. The 1.15 level had done a solid job of supporting the currency pair in the last few months, so it is equally significant that it has been able to rally higher and move back above this level for the time being. Just prior to the decline back to 1.13, the trading range of the EURUSD tightened to right around the other key level of 1.17, which has now emerged again to play a significant role.

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 1.17 level has been significant previously providing a measure of support late last year, so it should come as no surprise that it is recently provided some resistance to the EURUSD and is now an area of interest. Throughout May, the EURUSD was sold off strongly forcing it down through the well established support level at 1.22 and then 1.17 down to close to a one year low near 1.15. Since the middle of last year the 1.17 level had propped up the EURUSD several times.

The EURUSD has rallied well and pushed back up to the resistance level at 1.25 on a number of occasions however this level now seems some distance away. The support at 1.22 had established itself after a number of instances of propping up the EURUSD so far this year and likewise the resistance at 1.25 has repelled a number of times. Despite being some distance away, the 1.22 level now may provide some measure of resistance and EURUSD buyers around 1.22 will be keen to offload their long positions should the EURUSD return to close to this level.

The European Central Bank (ECB) has set the stage for a gradual policy normalization, planning to end bond purchases in December and then possibly raising interest rates late next year.The ECB’s goal is to maintain inflation at just under 2% over the medium term without monetary support.The ECB is well behind the U.S. Federal Reserve in withdrawing the emergency stimulus measures deployed in the wake of the global financial crisis a decade ago. Amid strong growth, the Federal Reserve is already raising rates and is letting its bond pile run down as the bonds are paid off, steadily withdrawing monetary stimulus.As the ECB are well aware, stimulus withdrawal will have wide-ranging effects. The money added to the system during the stimulus by global central banks pushed up the prices of assets such as stocks and real estate, and encouraged companies and governments to borrow, in some cases excessively. Ending the stimulus should reverse those trends and put pressure on both financial markets and countries that have heavy debt loads. That is why the ECB is moving slowly as it heads toward normalisation.

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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.