10:30, 18 January

Returns to Trading Range Below 1.15 as Draghi Warns on Growth

In the last week or so the EURUSD has dropped from a three month high near 1.1570 and returned back below the key 1.15 level. For the last couple of months now the EURUSD has been content to trade within a narrow range enjoying support from the other current key level of 1.13 and meeting resistance at the 1.15 level. It is interesting to note that its recent excursion above 1.15 didn’t last long as it was quickly sold down at those three month highs.

The 1.13 level has also become quite significant of late, and even though it has fallen through this level a few times, it was quickly pushed higher through strong buying which will provide some confidence that the 1.13 level will provide strong support should the EURUSD attempt to decline again.

After dropping through the 1.13 level near mid-November, the EURUSD did well to rally higher from its lowest levels in 16 months back up towards 1.15 before easing in the week afterwards. Likewise the 1.15 level has become key of late providing stiff resistance and looming above ready to push prices lower.

Towards the end of October 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. 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 President of the European Central Bank (ECB) Mario Draghi has warned that euro zone's (EZ) economy is weakening more than expected and still needs "significant" support from the ECB.  Due to slowing growth in the EZ and the rest of the world, largely driven by China’s slowdown and ongoing trade wars with the United States, the markets have pushed back their expectations for when the ECB will raise rates for the first time since 2011, to 2020 at the earliest.  "A significant amount of monetary policy stimulus is still needed to support the further build-up of domestic price pressures and headline inflation developments over the medium term," Draghi said to the European Parliament in Strasbourg.  He added, “Our forward guidance on the key ECB interest rates, reinforced by the reinvestments of the sizeable stock of assets we have acquired, continues to provide the necessary degree of monetary accommodation."  Meanwhile, another disappointing set of industrial data from Germany has raised concerns that Europe's largest economy could have contracted in the fourth quarter of 2018.  German industrial production declined 1.9% month-on-month in November, coming in way below a consensus for growth of 0.3%.