- EUR/USD advances further and clinches weekly highs.
- The ECB left interest rates unchanged at Thursday’s event.
- Lagarde’s message falls on the neutral/(slightly) bullish side.
The upbeat sentiment around the European currency picks up further pace and lifts EUR/USD to new weekly peaks around 1.2170.
EUR/USD keeps the buying bias unaltered
EUR/USD’s upside gathers extra impulse in the wake of the ECB monetary policy decision and as President Lagarde’s press conference is under way.
In fact, EUR/USD reacted positively to Lagarde’s speech and moves to multi-day highs in the 1.2170 region.
Lagarde reiterated once again the inflation in the region remains low and that the current accommodative monetary policy stance remains appropriated. She also noted that interest rates are seen at current or lower levels until inflation “robustly” picks up pace towards the central bank’s goal. The bank sees inflation picking up pace once the pandemic impact starts to mitigate.
Lagarde said that growth prospects remain tilted to a “less pronounced” downside while uncertainty around the pandemic stays unabated.
No news regarding the FX issue, where she said the ECB will continue to monitor the performance of the exchange rate and its impact on the inflation.
On the PEPP, Lagarde confirmed it is forecast to run until end of March 2022 or until the coronavirus crises finishes and that reinvestments are expected until end of 2023. The PEPP can be recalibrated in case of need, she added.
What to look for around EUR
The leg lower in EUR/USD seems to have met decent contention in the mid-1.2000s for the time being. Despite the recent corrective downside, the outlook for EUR/USD remains constructive and appears supported by prospects of a strong recovery in the region (and abroad), which is in turn underpinned by extra fiscal stimulus by the Fed and the ECB. In addition, real interest rates continue to favour the euro area vs. the US, which is also another factor supporting the EUR along with the huge, long positioning in the speculative community.
EUR/USD levels to watch
At the moment, the pair is up 0.39% at 1.2152 and a break above 1.2173 (weekly high Jan.21) would target 2349 (2021 high Jan.6) en route to 1.2413 (monthly high Apr.17 2018). On the flip side, the next support is located at 1.2062 (55-day SMA) seconded by 1.2053 (2021 low Jan.18) and finally 1.1976 (50% Fibo of the November-January rally).
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