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Euro soars on Bundesbank

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Euro soars on Bundesbank

The common currency soared more than 0.6 percent against the US dollar after the Bundesbank tapered expectations for prolonged rock-bottom interest rates in the Eurozone. In its monthly report, Germany’s central bank hinted at the possibility of higher Eurozone interest rates in the near-term if consumer inflation wasn’t kept in check. This means the Eurozone’s commitment to spur economic recovery won’t come at the expense of the currency bloc’s inflation outlook.

Earlier in the summer European Central Bank President Mario Draghi pledged to not only keep interest rates at record lows, but to slash them even further, if the economy doesn’t show signs of improvement. Draghi’s comments reflect a prolonged attempt to generate growth in an otherwise contracting Eurozone economy. While acknowledging the benefit of record low lending rates, Germany’s Bundesbank has emphasized the need to uphold the currency zone’s mid-term outlook on inflation. The benchmark lending rate is currently pegged at 0.5 percent.

The EURUSD pair advanced more than 1.1 percent over the previous five days, as mixed US data has created uncertainty about whether the markets can expect an asset taper at the Federal Reserve’s September policy meetings. Market participants remained largely on the sidelines Tuesday as a lack of US data kept investors speculating about what Wednesday’s FOMC meeting minutes could potentially reveal.

The EURUSD soared to a high of 1.3450 in the New York session, surpassing the June 19 high of 1.3416. The one-hour timeframe analysis points to a slightly bullish outlook for the pair, which consolidated mid-day due to a lack of compelling indicators from the US. The pair’s first level of resistance is offered at 1.3434. A breach of this level would expose intraday highs followed by 1.3479, the high from February 13. On the downside, the pair’s support levels are found at 1.3405, the August 19 high, followed by 1.3389, the high from August 10.

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