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EUR/USD Spirals, as Demand for the Greenback Remains Firm

H.S. Borji
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EUR/USD Spirals, as Demand for the Greenback Remains Firm

The euro was trading near 14-month lows against its US counterpart on Friday, as the greenback was well supported despite a mixed message from the Federal Reserve on Wednesday, while the outlook on the Eurozone remained subdued.

The EURUSD fell to an intraday low of 1.2832, the pair’s lowest level since May 2013. It would subsequently consolidate at 1.2849, declining 0.51 percent. The pair faces immediate support at 1.2799 and resistance at 1.2975.

The pair is on pace for a weekly decline of 0.8 percent, extending its month-long losing streak to 3.8 percent.

The euro faced renewed selling pressure earlier this month after a surprise announcement from the European Central Bank. The ECB slashed its target for the overnight rate for the third time in less than a year and announced plans to begin purchasing up to €500 billion in asset-backed securities.

Central bank policymakers are responding to renewed pressures on the Eurozone economy, which stagnated in the second quarter amid an escalating sanctions war between Russia and the West over the former’s perceived involvement in Ukraine. With the United States and its European allies announcing a fresh wave of sanctions last week, the risk of a greater rift between Russia and the Eurozone has emerged.

The sanctions war has already weighed on Germany, which suffered a setback in the second quarter. Europe’s star economy contracted 0.2 percent in the April-June period, official data showed.

Meanwhile, Eurozone inflation is trending at multi-year lows with little sign of improvement. The European Commission reported earlier this week that consumer prices in the 18-nation currency bloc rose at an annual rate of 0.4 percent in August, a slight improvement over the advance estimate showing a 0.3 percent gain.

German producer inflation, which tracks price changes in primary markets, declined at an annual rate of 0.8 percent in August, the Federal Statistics Agency confirmed today. That followed a similar decline the previous month.

The common currency faces an active news wire next week headlined by PMI data and the IFO business climate survey.

The US dollar enjoyed strong support on Friday, despite mixed messages from the Federal Reserve at the September policy meetings, which were held earlier this week in Washington. The Federal Open Market Committee voted once again to reduce the pace of monthly bond purchases, paving the way for a final stimulus reduction of $15 billion at the October policy meetings. However, the central bank reaffirmed its commitment to lower interest rates and said monetary policy would remain accommodative for a “considerable time” after the end of quantitative easing.

The September meetings were the seventh successive occasion the Federal Reserve reduced the pace of monthly bond buying.

The US dollar index, a weighted average of the greenback’s performance against a basket of currencies including the euro, edged up 0.46 percent to 84.71 and is poised for its tenth consecutive weekly gain.

There were no major US data releases scheduled on Friday. The US government will release several market-moving data next week, including home sales, durable goods orders and revised second quarter GDP estimates.

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