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EURUSD - Settles Below 1.12 after Warnings over Low Rates



EURUSD - Settles Below 1.12 after Warnings over Low Rates
In the last few days the EURUSD has eased back below the key 1.12 level back into its popular range between 1.11 and 1.12. It had moved strongly to close out last year and into the new year moving to a five month high near 1.1250, before easing. Since the beginning of December, the EURUSD has steadily rallied higher pushing through another current key level of 1.11 which had been providing stiff resistance for several weeks.

As it has previously, it is now likely to find some support at this level should it retrace and test it. The 1.11 and 1.12 levels remain key and the EURUSD has been bouncing off both these levels for several months.

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. The 1.10 level provided strong support in November propping the currency pair up after the fall to start the month, and may be called upon again should support at 1.11 fail. Throughout October the EURUSD rallied well back above the key 1.11 level however just settled a little feeling some selling pressure from near 1.12. It made another run towards 1.12 before the fall earlier last month.

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. At the start of October, the EURUSD dropped to a two year low below 1.09 and started to look precariously placed with no more obvious support levels below it, so it has done well to reverse and move as strongly as it has since then and remain above 1.10.

Two former prominent central bankers have warned over low interest rates, as former European Central Bank (ECB) President Mario Draghi and former Federal Reserve Chair Janet Yellen have spoken at an event on the weekend.  “I believe that for the euro area there is some risk of Japanification, but it is by no means a foregone conclusion” if it acts appropriately to avoid deflation, Draghi said.  “The euro area still has space to do this, but time is not infinite,” he added.  Ms Yellen spoke specifically about the United States and suggested there are structural issues keeping interest rates low which may stay low for an extended period.  “These factors are apt to prove chronic by nature,” she said.  Mr Draghi was unhappy with the way governments within the Eurozone have almost worked against the ECB’s efforts by pursuing restrictive fiscal policies. “This is why the ECB has been consistently calling for fiscal policy to play a stronger role and capitalize” on the low rates, he said.  Ms Yellen said that forward interest-rate guidance and quantitative easing can be effective in providing stimulus to the economy.  But while “monetary policy has a meaningful role to play, it’s unlikely to be sufficient in the years ahead,” Yellen said. It “should not be the only game in town.”

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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.