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EUR/USD: Euro falls back below 1.25 as Draghi weighs in

H.S. Borji
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EUR/USD: Euro falls back below 1.25 as Draghi weighs in

The euro declined against its US counterpart Monday, retracing earlier gains as European Central Bank President Mario Draghi weighed in on the health of the Eurozone economy.

The EURUSD touched an intraday high of 1.2575, the pair’s highest level since October 31. It would subsequently consolidate at 1.2457, declining 0.5 percent. The technical chart shows initial support at 1.2434 and resistance at 1.2583, although the 1.25 level has served as a key barrier throughout November. The EURUSD has bounced around 1.24-1.25 for most of the month, finding buyers and sellers at each end of that range.

European Central Bank President Mario Draghi reaffirmed today that he was prepared to do whatever it takes to stimulate the Eurozone economy. In a speech to the Economic and Monetary Affairs Committee, Draghi said the central bank’s credit easing measures were working, but cautioned Eurozone growth had weakened over the summer.

“The euro area growth momentum has weakened over the summer months and most recent forecasts have been revised downwards,” Draghi said.

“Risks to the economic outlook continue to be on the downside. In particular, the weakening in the euro area’s growth momentum, alongside heightened geopolitical risks, could dampen confidence and, in particular, private investment. In addition, insufficient progress in structural reforms in euro area countries constitutes a key downward risk to the economic outlook,” he added.

Still, Draghi affirmed that the ECB’s credit easing package is “delivering tangible benefits,” although the central bank’s governing council remained “unanimous in its commitment to using additional unconventional instruments if needed.”

The ECB slashed interest rates to an all-time low of 0.05 percent in September and announced it would begin buying asset-backed securities to help stimulate the struggling economy and avoid Japanese-style deflation. Inflation has trended at less than half of the ECB’s target rate since last October. Last week the European Commission said Eurozone consumer prices rose 0.4 percent annually in October, following a 0.3 percent increase a month earlier. The core inflation rate was at 0.7 percent, official data showed.

The 19-nation currency bloc is expected to grow just 0.8 percent this year. The euro wide economy stagnated in the second quarter, as Germany contracted and Italy slipped back into recession. Eurozone GDP rebounded 0.2 percent in the July to September period, the EC reported last week. Germany, which accounts for a third of Eurozone output, edged up 0.1 percent in the third quarter.

The euro was unable to rebound following mediocre US industrial production figures. Industrial production in the world’s largest economy declined 0.1 percent in October, as mining and utilities output declined. The capacity utilization rate declined 0.3 percentage points to 78.9 percent.

Latest data continue to suggest the US growth engine was softening in the second half of the year, although economists remain relatively upbeat about the recovery efforts.

The US economy grew 3.5 percent year-on-year in the third quarter, exceeding forecasts. The government will release more complete third quarter data next week.

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