EURUSD tumbles lower and trade below 1.1000
The EURUSD is running lower and is now testing the 1.1000 level. The last time the price traded this low was on July 11. Lagarde comments have contributed to the declines. It started after the ECB head said that the near-term outlook has deteriorated. A summary of Lagarde’s comments in topics:
Inflation and Prices:
- Domestic price pressures are increasingly driving inflation.
- Wage increases are playing a significant role in driving inflation.
- Inflation outlook is highly uncertain. Upside risks include higher energy and food costs due to external factors like Russia’s withdrawal from Black Sea grain deal and adverse weather conditions.
- Longer-term measures of inflation are elevated and need careful monitoring.
- Not currently observing a second round of inflationary effects.
Economic Outlook:
- The near-term outlook has deteriorated.
- Anticipates weak growth in the near term but expects a subsequent strengthening recovery.
- Manufacturing is being held down by weak external demand, whereas the services sector is more resilient albeit with slowing momentum.
- Labour market remains robust.
Monetary Policy and Decision Making:
- Today’s rate decision was unanimous. The changes in the statement were deliberate and significant.
- Monetary policy decisions will be data-dependent. Future data and assessments will indicate any necessary policy adjustments.
- ECB has not discussed a balance sheet cut.
- The cut in the minimum reserve remuneration rate does not impact the overall policy stance.
- There might be a possibility of an interest rate hike or pause, but it’s uncertain at this point.
Policy Impact and Transmission:
- ECB is starting to see its policy being transmitted to the economy.
- Future actions like rate hikes or pauses will take into account staff projections and more data.
- ECB will not be cutting rates. If it decides to pause, it might not be for an extended period, and the decision will be data-informed. This view is endorsed by the Governing Council.
Looking at the EURUSD, it is now trading below the 1.1000 level. Along the way lower, the pair has seen a break below its
- 100-hour moving average at 1.10835,
- 50% midpoint at 1.10539, and a
- Swing area between 1.1010 and 1.10267.
The most recent break is below the 61.8% retracement of the move up from the July low. That level comes at 1.10017 – near the 1.1000 natural support level.
What next?
Sellers are in control. I would set close risk at the high of the swing area in the short term at 1.102679. Look for sellers near that level on a bounce. The next downside target area comes between 1.09618 and 1.09759