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EUR/USD Eyes 2020 Low Amid Limited Reaction to ECB’s Emergency Program

EUR/USD Eyes 2020 Low Amid Limited Reaction to ECB’s Emergency Program

2020-03-19 05:00:00
David Song, Strategist

EUR/USD Rate Talking Points

EUR/USD continues to approach the 2020 low (1.0778) even though the European Central Bank (ECB) takes additional steps to combat the coronavirus, and the Euro may face a more bearish fate over the coming days as the Governing Council endorses a dovish forward guidance.

EUR/USD Eyes 2020 Low Amid Limited Reaction to ECB’s Emergency Program

EUR/USD showed a kneejerk reaction to the ECB’s Pandemic Emergency Purchase Programme (PEPP), with the exchange rate pulling back from the session high (1.0981) as President Christine Lagarde tweets that “there are no limits to our commitment to the euro.

The comment suggests the ECB will continue to utilize its unconventional tools to support the Euro area as the Governing Council remains reluctant to push the main refinance rate, the benchmark for borrowing costs, into negative territory, and President Lagarde and Co. may unveil more non-standard measures at its next meeting on April 30 as the central bank pledges to “explore all options and all contingencies to support the economy through this shock.”

However, the ECB’s ballooning balance sheet may have unintended consequences as the central bank looks to revise “some self-imposed limits,” and the Governing Council may call upon European lawmakers to deliver additional fiscal stimulus programs amid the growing number of COVID-19 cases across the Euro area.

With that said, the Euro may face additional headwinds as the ECB continues to push monetary policy into uncharted territory, and EUR/USD may face a more bearish fate over the coming days as the Governing Council keeps the door open to further utilize its non-standard measures.

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EUR/USD Rate Daily Chart

Image of EUR/USD rate daily chart

Source: Trading View

  • Keep in mind, the monthly opening range has been a key dynamic for EUR/USD in the fourth quarter of 2019 as the exchange rate carved a major low on October 1, with the high for November occurring during the first full week of the month, while the low for December happened on the first day of the month.
  • The opening range for 2020 showed a similar scenario as EUR/USD marked the high of the month on January 2, with the exchange rate carving the February high during the first trading day of the month.
  • However, the opening range for March has become less relevant amid the pickup in volatility, with EUR/USD now threatening the 2020 range as the pullback from the yearly high (1.1495) pushes the exchange rate towards the February low (1.0778).
  • Nevertheless, need a close below the Fibonacci overall around 1.0830 (78.6% expansion) to 1.0860 (23.6% retracement) to spur a more meaningful run at the 1.0780 (100% expansion) region, with the next area of interest coming in around 1.0560 (100% expansion) to 1.0600 (161.8% expansion).
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--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong

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