Will Draghi Talk Down The Euro?

The single currency continues to appreciate aggressively and reached new four-year highs at 1.2355 during the European session. The key driver behind euro’s rally since the start of the year is the increasing bearish pressure around the greenback. But the December ECB meeting minutes, which were more “hawkish”, has contributed to the upbeat mood around the European currency.

Ahead of tomorrow’s ECB meeting, the markets don’t expect any changes in the current monetary policy program, so the focus will be on Draghi’s rhetoric, potential changes to the forward guidance and possible comments on the currency’s strength. The latter is going to be the key issue for euro bulls, as any sign of Draghi’s verbal interventions may drag EUR/USD down.

However, even in such circumstances, the overall bullish trend will stay intact, and the potential bearish correction will open new opportunities for reentering the market with new EUR longs. At that, the scale of a retreat will depend on the regulator’s tone on other issues including the prospects of adapting its forward guidance in the coming month.

The healthy euro area economic fundamentals don’t apply any “dovish comments” on this front, therefore, the downside risk for the pair is limited anyway. A pullback under the 1.23 mark, which is now the immediate support, will open the way to the 1.2180 area, where buyers may emerge.

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