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March 13, 2018

The echo of ECB stimulus

The echo of ECB stimulus

EURUSD has been long staying in the range 1.21-1.25 throughout this year but firm expectations on ECB tightening points to gaining strength for further upside movement.

The currency pair driven to multi-year lows on massive ECB stimulus measures turned to consolidation at the start of 2017 and later moved to growth on signals of policy tightening. Since then, the buck erased almost 20% against european currency. It would seem that such movements are more typical for the currencies of developing economies, but the upswing of uncertainty over US economy led to backlash after “reflation trade”. The dollar has declined in relation to virtually all world currencies.

So far, the growth of EURUSD is taking place in the downward channel, in which it has been since 2008. In addition, the rebound from 1.04 to 1.26 corresponds to a Fibonacci retracement of 0.618.

Also, traditionally, any serious movement in this pair takes place within one year, after which – either consolidation or reversal.

In our opinion, the exit from the current corridor will occur down to levels of 1.17-1.19 dollars per euro. In this range, the currency pair will collide with the level of support of the volume profile.

The further movement will depend on stability of the global economy growth. So far, it seems that in the next year and a half the US dollar will remind everyone what is the main world currency. Although, the euro advance above 1.28 looks unlikely at the moment.

Therefore, in our opinion, from a technical point of view, the dollar looks more attractive than the euro.

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