EURUSD

08:04, 22 October

Continues to Clasp to Support from Key 1.15 Level

In the last week or so the EURUSD has reversed from a two week high above 1.16 and fallen back lower below the current key level of 1.15. To finish out last week the EURUSD did reverse again and rally higher to back above the 1.15 level where it continues to attempt to stay above. Only several weeks earlier the EURUSD fell strongly from multi-month highs above 1.18 down to the key support level at 1.15. It also reversed strongly and rallied back above the 1.15 level a couple of weeks ago. The 1.17 has posed significant resistance as expected and likewise, the 1.15 level has now provided support on several occasions.

 

In the second half of August, the EURUSD rallied strongly as it recovered from a 12 month low at 1.13. 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. For the last five months the 1.17 level has become key as the EURUSD has often responded to it and in most cases, it has pushed the currency pair lower. 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 has 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. 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) might be forced to raise interest rates sooner than they had planned amidst inflation and divergent monetary policy, according to Allianz's Chief Economic Advisor, Mohamed El-Erian. El-Erian told CNBC, “It wouldn't surprise me if they (the ECB) start hiking in the middle of summer (2019), as opposed to the end of the summer, or even the beginning of the summer. But they're going to retain optionality 'til the very last moment."He continued to say, "The interest rate dynamics are completely consistent with divergence in economic policy and divergence in performance. The question is, does it (raising rates in one country) break something somewhere else?"The ECB has indicated that it will not raise their record low-interest rates before September 2019, which just so happens to be a month before current President Mario Draghi is due to step down. Meanwhile, ECB President Draghi believes that the independence of central bankers around the world is being threatened by governments demanding monetary support ranging from debt cancellation to bond purchases and lower rates. Draghi cited Turkey, where President Tayyip Erdogan was very critical of the central bank and repeated his opposition to high-interest rates, shortly before the bank was due to announce a policy decision.