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Euro on its Heels ahead of Draghi’s Jackson Hole Speech

H.S. Borji
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Euro on its Heels ahead of Draghi’s Jackson Hole Speech

The euro was trading lower against the US dollar and British pound Friday, as investors shifted their attention to the annual Jackson Hole Symposium that features a keynote speech from European Central Bank President Mario Draighi.

The euro-to-dollar exchange rate tumbled for the fourth time this week, as the pair looks poised to test one-year lows. The EURUSD declined 0.23 percent to 1.3251, and is on pace for a weekly drop of more than 1 percent. The pair is testing the initial support at 1.3252. Below that level, 1.3224 and 1.3205 are the next targets. On the upside, initial resistance is likely found at 1.3299, followed by 1.3318 and 1.3346.

The euro-to-pound exchange rate fell below the psychological 80.00 level, declining 0.23 percent to 0.7992. The pair is testing initial support at 0.7994. Below this level, 0.7976 and 0.7967 are the next targets. Resistance is ascending at 0.8021, 0.8030 and 0.8048.

The ECB’s Mario Draghi will deliver a speech at the Jackson Hole Symposium on Friday. The Jackson Hole Symposium is an annual event sponsored by the Federal Reserve Bank of Kansas City, and is attended by the most notable central bankers in the world.

Draghi’s speech will likely focus on the labour market, which is this year’s theme. Eurozone unemployment declined 152,000 in June, the second-largest monthly drop since February 2007.

Analysts who are closely monitoring the event don’t expect any major breakthroughs from Draghi, who will likely underscore why ECB policy will remain highly accommodative for a longer period.

Draghi will likely reflect on interest rates, which will remain close to zero for much longer than other advanced industrialized economies. The ECB cut its benchmark lending rate to 0.15 percent in June and implemented a negative deposit rate in an effort to shore up inflation. Since those efforts were introduced consumer prices have weakened further.

Eurozone inflation has been below the “danger zone” of 1 percent for ten straight months, the European Commission confirmed last month.

At the same time, the burgeoning crisis in Eastern Europe has weighed heavily on the Eurozone’s nascent recovery. Eurozone gross domestic product was flat in the second quarter, as France stagnated and Germany contracted for the first time since 2013.

Europe’s star economy contracted 0.2 percent in the April-June period. Germany is expected to be hit hard by the escalating sanctions war between Russia and the West. Latest indicators suggest German businesses are already scaling back investment plans.

The unexpected drop in German output has placed more pressure on the ECB to introduce more accommodative measures to boost growth. Quantitative easing is one of those measures. Draghi won’t indicate one way or another whether the Bank favours QE, but could present it as a viable option moving forward.

Europe had no major data releases scheduled for Friday. Next week sees the release of German employment figures and Eurozone inflation data.

Overall unemployment in Germany is forecast to fall this month, but the unemployment rate is expected to remain steady at 6.7 percent.

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