EURUSD Pulls Back on Draghi’s Comments; Price Action Remains Range Bound

by on April 24, 2014 1:45 pm BST

EURUSD saw an early boost higher after the German Ifo business climate survey came in higher than expected, coming in at 111.2 versus estimates of 110.5; but, the pair pulled back on comments from European Central Bank (ECB) President Mario Draghi that a broad asset purchasing program could be in the works if inflation continues to erode.

Draghi said in a statement this morning “the objective here would not be to defend the current stance, but rather to increase meaningfully the degree of monetary accommodation.” The euro’s stubbornness to decline is getting in the way of price stability. “The Governing Council is committed –- unanimously –- to using both unconventional and conventional instruments to deal effectively with the risks of a too-prolonged period of low inflation,” said Draghi.

Inflation has become a huge problem in the eurozone, with the latest data showing that consumer prices are at four year lows. The .5 percent current rate is much lower than the ECB’s goal of two percent. Draghi also commented that the current euro exchange rate implies a tightening of monetary policy, but the central bank plans on being accommodation as long as needed.

EURUSD has remained ranged bound between 1.3785 and 1.3860. The diversion of central bank policies (the Federal Reserve and ECB), the euro-dollar is more than likely going to weaken in anticipation of quantitative easing from the ECB. Price action has been able poke through resistance at 1.3840, but traders have been unable to extend any moves higher with conviction.

Look for the pair to trade lower on a break of the wedge that is within the 4H consolidation channel. Support is likely to be found at 1.3785/90, while a deeper retracement to 1.3760 is possible. Resistance still remains 1.3840/50 before testing the upper bounds of the channel.

4H Chart of EURUSD

4H Chart of EURUSD