09:30, 14 November

Support at 1.13 Gives Way after Draghi Comments

In the last week the EURUSD has fallen strongly after reversing at the key 1.15 level which saw it trade to its lowest levels in 16 months. In doing so it moved through the reliable support level at 1.13 and this level is now likely to provide some resistance as the EURUSD attempts to regain some of the lost ground. In the week prior the EURUSD did well to surge higher off support at the key 1.13 level after having fallen strongly over the last few weeks from above 1.16. Only several weeks earlier the EURUSD fell strongly from multi month highs above 1.18 down to the key support level at 1.15.

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) President Mario Draghi has said that the ECB’s policy guidance is not carved in stone and can be changed if the outlook darkened.“We keep a lot of optionality in our message, in our monetary policy guidance,” Draghi said.“If things were to go worse, then we can always extend the period of time, we can always change our forward guidance consistently with the incoming information.”Draghi added the he did not expect the end of the ECB’s bond purchases would increase sovereign borrowing costs as the bank will continue to provide stimulus through several other channels.On a related matter, markets are betting that a slowing global economy will impede the ECB’s efforts to lift rates significantly away from its lowest levels.At the end of the year the ECB is expected to end its 2.6 trillion euro monetary stimulus scheme and has strongly indicated it will keep interest rates unchanged until later into 2019 to support economic growth.Meanwhile, the U.S. Federal Reserve has been raising rates since late-2015 and is set deliver this year’s fourth rate rise in December.Major central banks, including the ECB, pushed interest rates to record lows or negative territory in the wake of the global financial crisis to fight deflation and stimulate weak economies.