On Thursday 16 July, the European Central Bank (ECB) opted to hold firm and keep interest rates and its emergency coronavirus stimulus programme unchanged, even though ECB President Christine Lagarde said that we have probably "passed the lowest point". The euro has risen nearly 8% against the US dollar since the March low from the Covid-19 financial markets crash. Read on to find out what could be next for the currency.
The ECB tread cautiously with its €1.35 trillion stimulus
Last month, the ECB expanded its Pandemic Emergency Purchase Program (PEPP) by 600 billion euros. This act brought the size of its total stimulus package to 1.35 trillion euros. While the bank has maintained that the stimulus is flexible and could be removed if the crisis is over, in its July meeting they held firm by keeping interest rates unchanged and sticking with the PEPP.
While ECB President Christine Lagarde stated that we have probably "passed the lowest point" at an event in late June, she also commented that fears of a second wave are still real. It is one reason the ECB has opted to wait and monitor the economic progress of the Eurozone. The bank has forecasted that Eurozone GDP could contract by 8.7% with the IMF forecasting a larger contraction of 10.2% this year.
The euro was largely unchanged on the comments as markets tread carefully after a big run up in the currency against the US dollar and some other major currencies like the Swiss Franc.
How to trade EURUSD
Below is the long-term, weekly chart of the euro against the US dollar (EURUSD):
Source: Admiral Markets MetaTrader 5, EURUSD, Weekly - Data range: from 31 August 2014 to 16 July 2020. Please note: Past performance is not a reliable indicator of future results.
In the chart above the EURUSD has risen nearly 8% from the March low, marking an impressive price rally higher. While some of this move has been related to a much weaker US dollar (due to the resurgence of a possible second wave of the coronavirus), some analysts have been bullish about the Eurozone's prospects.
However, the story is of course in the price as that shows who is in control of the market, the buyers or sellers. Currently, EURUSD is at an interesting juncture, trading at the 200-weekly exponential moving average and a key level of horizontal resistance in which price has struggled to break through several times since late 2018.
The 1.1400 to 1.1500 price level seems to be a critical point for the currency pair where either buyers could break through, helping the pair to trade back up to the next resistance area of 1.1600, or sellers could take control and drive the price back down. Some traders may well need to wait till the next high impact news announcement on 29 July, the Federal Reserve FOMC Press Conference.
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