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EUR/USD Rate Outlook Mired by ECB’s Zero Interest Rate Policy (ZIRP)

EUR/USD Rate Outlook Mired by ECB’s Zero Interest Rate Policy (ZIRP)

David Song, Strategist

EUR/USD snaps the range from earlier this week even as the European Central Bank (ECB) unveils a more detailed exit strategy, and euro-dollar stands at risk for further losses as the Governing Council remains in no rush to normalize monetary policy.

Even though the ECB plans to narrow the asset-purchase program to EUR15B/month starting in October, the recent comments suggest the central bank will resist calls to remove the zero interest rate policy (ZIRP) as ‘the current ample degree of monetary accommodation that will ensure the continued sustained convergence of inflation towards levels that are below, but close to, 2% over the medium term.’ It seems as though President Mario Draghi and Co. will refrain from implementing higher borrowing-costs ‘at least through the summer of 2019’ as the ECB struggles to achieve its one and only mandate for price stability, and the dovish outlook for monetary policy may continue to drag on EUR/USD especially as the Federal Open Market Committee (FOMC) appears to be on course to implement four rate-hikes this year,

The reaction to the ECB meeting has largely wiped out the advance from the May-low (1.1510), with the break of the recent range raising the risk for a further decline in EUR/USD especially as the Relative Strength Index (RSI) flashes a false signal and largely tracks the bearish formation from earlier this year. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups!

EUR/USD Daily Chart

Failure to retain the monthly opening range raises the risk for a further decline in EUR/USD especially as the pair initiates a fresh series of lower highs & lows. Break of the May-low (1.1510) opens up 1.1390 (61.8% retracement), with the next region of interest coming in around 1.1210 (61.8% retracement) to 1.1220 (78.6% retracement).

For more in-depth analysis, check out the Q2 Forecast for the Euro

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.