EUR/USD is now moving lower, still within the range, after ECB president Mario Draghi ended his press conference.
While the central banker expressed confidence about inflation, he went into detail to explain why the euro should fall against the dollar. And this is what is happening right now.
Draghi said that the fundamentals regarding the exchange rate have changed and detailed:
- Monetary policy divergence means the US will tighten way before the ECB will. He already hinted in the past that rates will not rise before end 2016.
- June’s measures (negative deposit rate in particular) have been successful. Basically, banks are “punished” for parking money with the central bank.
- Speculation has changed: more euro shorts. Draghi quoted the CFTC data and sounded like a forex analyst.
- Flows into the euro zone have weakened: less short term capital flows. Money entered the zone chasing high yielding peripheral bonds. These bonds are not so cheap anymore.
EUR/USD traded around 1.3370, in a relatively limited range around the press conference. Saying that inflation will eventually return to range and the lack of worries about weak growth pushed the pair higher, while the exchange rate explanation pushed it lower.
After the presser ended, we are seeing a downwards move with the fresh low standing at 1.3343. The cycle low has been 1.3332.
Support awaits at 1.3325, with critical support at 1.3295 – the November low.