10:40, 03 May

Meets Resistance at 1.12 Despite ECB Officials Expressing Confidence

In the last few days the EURUSD has rallied back above the new key level of 1.12 only to be sold off very strongly forcing it lower and is now looking likely to threaten the recent trough and two year low near 1.1110. The 1.12 level has ably supported the currency pair in the last couple of months however the overall trend has been clearly down with lower peaks from its trading levels above 1.15 to start the year. Now that the 1.12 level has been strongly broken through it is likely to continue to provide resistance.
Only a few weeks ago the EURUSD attempted to climb back above the other current key level of 1.13 and after meeting resistance there for around a week, it was thwarted and sold off reasonably strongly falling to the two year low.

In early February the EURUSD was sold off after running into resistance at the other key level of 1.15, and it has maintained its trading range between 1.13 and 1.15 for the most part of the last six months. Again, it is currently looking like it might struggle to return to this range as it pushes lower below 1.13. On numerous occasions in the last few months the EURUSD has enjoyed rock solid support from the key 1.13 level so it will be interesting to see if it has another rally left, now that it is receiving tough resistance from this level.

For the last few months now the EURUSD has been content to trade within a narrow range enjoying support from 1.13 and meeting resistance at the 1.15 level. It is interesting to note that its excursion above 1.15 earlier in the year 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, however this confidence is now likely gone.

European Central Bank (ECB) officials are quietly expressing confidence that the Eurozone’s economy is improving.  Bundesbank President Jens Weidmann stated that Germany’s excellent labor-market situation and rising incomes should help boost private consumption, alongside a strong increase in retail sales in the first quarter.  He urged the ECB to proceed with their plans to leave its current monetary policy if inflation allows.  “From today’s perspective, much suggests that the economy is only experiencing a temporary weak phase and will pick up speed again after its soft patch,” President Weidmann said in a speech.  In a speech, Finnish central-bank Governor Olli Rehn highlighted this week’s stronger-than-expected growth reading for the region as evidence of a eurozone recovery.  However he also warned against overreacting to the data and taking time to assess the situation.  “Some very recent indicators hint at stabilization,” he said. “This is good news, of course. But in my view we should not jump the gun after the first green shoots and change the course. In policy-making, it is often better to be safe than sorry.”