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EUR/USD Long At 1.1355, Take Profit At 1.1580

Published 01/27/2019, 08:06 AM
Updated 07/09/2023, 06:31 AM

Trade Ideas:
  • EUR/USD: long at 1.1355, take profit at 1.1580, stop-loss 1.1255
  • USD/CAD: short at 1.3350, take profit at 1.3010, stop-loss 1.3485

Market Overview

European Central Bank President Mario Draghi acknowledged on Thursday that economic growth in the euro zone was likely to be weaker than earlier expected due to the fall-out from factors ranging from China's slowdown to Brexit.

The economic slowdown raises questions over whether the ECB will be able to increase interest rates for the first time in a decade later this year as its current guidance indicates. The ECB left that guidance and interest rates unchanged at its meeting on Thursday. But Draghi's downbeat comments, including a reference to "downside" risks, will fuel market speculation that the bank will delay any rate hike.

Despite citing the rising risks, Draghi nonetheless reeled off reasons for not changing policy now, notably the strength of the region's labour market and rising wage growth, which he said would help push underlying inflation up over the medium term.

"The key factor to assess is the persistence of the uncertainty," he said, adding he was confident that those uncertainties - ranging from the outcome of Brexit to China's slowdown and trade protectionism - were being addressed. "The Governing Council will give itself more time to assess whether all these risk factors have affected confidence and we are going to have another discussion in March when we will also have the new projections."

Draghi said the Governing Council was unanimous both in acknowledging the growth slowdown and the factors causing it but some policymakers were less optimistic than others about the economic outlook.
Having ended a bond purchase scheme just weeks ago, the ECB said it still expected to keep interest rates at record lows "through" the summer, sticking with its long-standing guidance even though markets now see a much later move.

European Central Bank policymakers promised on Friday to tread carefully in removing stimulus any further, just as two fresh surveys pointed to an even bigger-than-projected slowdown in the euro zone's growth.
"We remain committed to maintaining interest rates very low, which is good for the economy," French central bank chief Francois Villeroy de Galhau said. "Progressively we are withdrawing monetary stimulus ... but it is very progressive and depends on improvement in the economy. We'll take the time it takes.”

"The slowdown has surprised us ... we have to be very careful to monitor the data," ECB board member Benoit Coeure said, arguing that the jury was still out on whether this growth dip is temporary.

On Thursday EUR/USD saw the second biggest one-day drop in January to register a daily close below two key levels. The close below both the daily cloud base at 1.1377 and the 1.1351 Fibonacci level, a 61.8% retrace of the 1.1216 to 1.1570 (November to January) rise was a bearish signal. That signal was not confirmed on Friday - we saw a long white candlestick. In our opinion, last week's dovish statement from the ECB had been largely priced in. We keep our strategy unchanged - long at 1.1355 for 1.1580.

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