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EUR/USD falls to lowest closing level in two weeks amid ECB easing hints

ForexJan 22, 2016 06:07PM ET
 
EUR/USD fell more than 0.70% on Friday to close below 1.08

Investing.com -- EUR/USD fell sharply on Friday closing below 1.08 for the first time in more than two weeks, as Mario Draghi continued to reiterate that further easing measures from the European Central Bank could be on the way if current economic conditions persist.

The currency pair traded in a broad range between 1.0790 and 1.0877 before closing near session-lows at 1.0797, down 0.0078 or 0.72% on the session. It marked the third straight loss for the euro against the dollar and the fourth in the last five sessions. After opening the new year with a positive week in the first week of January, the euro fell against the dollar for the second straight week. The euro is down mildly against its American counterpart by approximately 0.5% since the start of 2016.

EUR/USD likely gained support at EUR/USD at 1.0538, the low from December 3 and was met with resistance at 1.1352, the high from Oct. 22.

One day after hinting the ECB could expand the scope of its comprehensive Quantitative Easing program when it meets in March, ECB president Mario Draghi reiterated that the central bank has enough tools at its disposal in order to help boost inflationary pressures throughout the zone. Speaking at the World Economic Forum in Davos, Switzerland, Draghi also indicated the ECB could be ready to act in March if the markets require intervention.

Draghi offered dovish comments on the possibility of further interest rate hikes in the near term on Thursday, after the ECB's Governing Council held its benchmark rate steady at a record-low of 0.05%. The ECB also left its deposit rate unchanged at minus 0.3%, one month after cutting it further into negative territory by 10 basis points.

"We have plenty of instruments and especially we have the determination and willingness and capacity of the Governing Council to act and deploy these instruments," Draghi said.

Also on the sidelines of the conference in Davos, China vice president Li Yuanchao emphasized that the People's Bank of China will continue to take an active role in regulating equity markets when such efforts are required to help reduce volatility. The Shanghai Composite index has tumbled more than 15% this year, as the Chinese economy trudges along at its slowest pace in a quarter century. Speaking exclusively to Bloomberg, Yuanchao also insisted that the PBOC has no intention of devaluing the yuan.

"The fluctuations in the currency market are a result of market forces, and the Chinese government has no intention and no policy to devalue its currency," Yuanchao said.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, surged more than 0.45% to an intraday high of 99.68, before closing t 99.60. The dollar remains near a 12-month higher from December, when the index eclipsed 100.00.

The yuan comprises approximately one-fifth of the currency basket. As a result, any major devaluations in the renminbi are bullish for the dollar.

Although the ECB has mulled pushing the deposit rate further into negative territory in recent weeks, the Federal Reserve is in the midst of its first tightening cycle in a decade after abandoning a Zero Interest Rate Policy at a historic meeting last month. Investors await the completion of next week's two-day Federal Open Market Committee meeting for further indications of potential divergence between the ECB and the U.S. central bank.

Yields on the U.S. 10-Year rose two basis points to 2.05%, while yields on the Germany 10-Yearincreased three basis points to 0.48%. Earlier this week, bond yields on U.S. 10-year Treasuries fell to 1.93%, its lowest level since October.

EUR/USD falls to lowest closing level in two weeks amid ECB easing hints
 

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