Euro Exchange Rate Today: Outlook for EUR Remains Soft as Post-ECB Boost Proves Fletting

By Gary Howes

The euro rate complex is today seeing selling pressure as yesterday's post-ECB boost proves to be fleeting.

The euro is edging lower again this morning, after spiking higher yesterday following Mario Draghi’s surprisingly hawkish press conference.

A look at the foreign exchange rate markets shows:

• The euro dollar exchange rate is 0.18 pct down on last night's closing level at 1.3566.
• The euro pound exchange rate is 0.31 pct lower at 0.8302.
• The euro Australian dollar exchange rate is 0.04 pct lower at 1.5165.

Note: All our EUR quotes refer to the wholesale spot market. Your bank will charge a spread at their discretion when passing on a retail rate. However, an independent FX provider is so well placed on the market that they are able to deliver you up to 5% more currency. Please learn more here.

ECB gives euro a boost

The ECB boosted the euro exchange rate complex yesterday even despite murmurings of a potential small rate cut to help combat deflation.

"The ensuing press conference took the market by surprise as ECB President Draghi did not announce any new policy to combat this issue. Draghi merely repeated his previous statement that the ECB is “alert to the risks, and stands willing and ready to act” if inflation falls further below target," says a note from Investec.

Draghi went on to say that despite contemplating a wide range of measures the decision was made to reject calls for radical action that many had expected, choosing instead to focus on the ECB's medium term outlook where they see inflation moving higher.

"Overall this was seen as Euro positive as which saw EURUSD rally a cent and GBPEUR drop below 1.2000 for the third time this year, as the market scrambled to buy Euros. However going forward President Draghi did firmly put the focus on March’s meeting," say Investec.

Outlook for the euro: EUR remains heavy

Today's price action confirms to us that the euro is likely to remain heavy going forward.

"The latest recovery does not change the bearish picture as long as resistance holds at 1.3639. The risk is for resumption of downtrend from here to break through support 1.3458 and then test 1.3400," says a note on the euro dollar rate from UBS.

Craig Erlam at Alpari UK notes that:

"The pair (euro dollar exchange rate) failed to close above 1.3608, the 50% retracement of the move from 24 January highs to 3 February lows, as well as the 20 and 100-day SMAs, having reached highs just below the 200-period SMA on the 4-hour chart. Clearly there is significant resistance around this level but that doesn’t mean it won’t be broken in the coming days.

"That said, the pair does still remain in a downtrend having recorded lower lows and lower highs since the end of last year. If we see a break back below the ascending trend line, which dates back to 6 September, that the pair broke back above during yesterday’s rally, it would suggest that the move higher was only temporary."

According to Erlam, the negative outlook would be confirmed if the pair breaks below 1.3476, this week’s lows.

Below here further support should be found around 1.3458, 38.2% retracement of the move from 9 July lows to 27 December highs, 1.3380, 200-day SMA, and 1.3324, 50% retracement of the above move.

Alternatively, says Erlam, "a break above all of the resistance levels highlighted above, as well as the previous highs of 1.3739, would suggest this brief downtrend is over and the uptrend is going to continue."

Outlook dominated by non-farm payrolls

There is only one major event left on the agenda for this week, and it is likely to determine trade for much of the month ahead.

The February instalment of the US non-farm payroll data series is due.

"The Labor Department may report today that U.S. nonfarm payrolls grew by 180,000 last month after a 74,000 gain in December. For many investors who have been expecting the developed economies, especially the United States, to lead the global economy this year, solid evidence of strong U.S. job growth is vital to maintain conviction. Additionally, earnings from Walt Disney Co. to Akamai Technologies Inc. surpassed estimates," says Max Cohen at Spreadex.