EUR/USD reversed its very nice gains made in recent days and is trading at 1.3850 at the time of writing. The pair practically returned to the post-Draghi range, but isn’t sure it is going to stop there.
What is behind the move? Here are 3 reasons:
- Ukraine: The crisis in Ukraine moved quickly from the back burner to the headlines. The de-facto annexation of the Russian leaning peninsula of Crimea is already priced in, but now there are fears that Russia will go for the more strategic areas in east Ukraine, around Donetsk and Kharkiv. Ukraine’s mining and industry is concentrated there, and so sympathy somewhat leans towards Russia over there. Any economic blowout for Europe due to the crisis is bad for the euro in a time of a very fragile recovery.
- Profit taking: What goes up, must come down. The first push, that was inspired by the lack of action from the ECB and the confident message from Draghi saw a relatively short period of consolidation between the 1.3832 and 1.3894 lines. The pair then continued higher and peaked at 1.3965 – a 2+ year high. At these levels, the pair already completed a 250 pip ride within several days, and some profit taking close to the round number of 1.40 certainly makes sense.
- Draghi talks forex: This was not totally unexpected, but the high levels of the euro trigger not only natural profit taking but also efforts to play down the currency. ECB president Mario Draghi said that the “exchange rate is increasingly relevant in assessment of price stability”. This thinly veiled hint to act if the exchange rate continues rising did not fall on deaf ears, and certainly contributed to the move downwards. Draghi giveth and Draghi taketh away.
Support is found at 1.3832, followed by 1.3773. Resistance awaits at 1.3894. For more, see the euro dollar forecast.
And here is the chart:
It will be interesting to see if Ukraine will remain in the headlines during the weekend. A referendum on the future of Crimea is held on Sunday, and the outcome is known: a vote to join Russia.
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