Euro Rate Today: EUR Down But Not Quite Out, Yet
The euro is unchanged against the US dollar on Friday afternoon and is 0.16 pct higher against the British pound.
The shared currency is looking surprisingly chipper; a mere 24 hours after the European Central Bank shocked an estimated 90% of the market by announcing an interest rate cut.
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Why is the euro not lower?
"The ECB policy shocker yesterday caught the market long and wrong EUR/USD. The sell-off was brutal but, by the close, the EUR had recovered some poise," points out Shaun Osborne at TD Securities.
Euro exchange rates have also today shown resilience to yet more poor data events.
We had weak French IP data S&P downgrading France from AA+ to AA (stable) which both had little impact on the EUR.
S&P was critical of the French government’s policies which, it said, would not deliver long-term growth.
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Euro at pivotal resistance area
The euro dollar exchange rate (EUR/USD) found support yesterday around the 200-week MA at 1.3321 but losses earlier in the session took the market below the 1.3440/50 support zone that had held the market following the September (taper disappointment) USD sell off.
"This area is resistance and pivotal for the market now. We think the trend has turned against the EUR as the Fed seems intent on tapering (while keeping rates low) and the ECB eases policy," says Osborne.
TD Securities think the current phase of price action is highly reminiscent of the late 2012/early 2013 rally and reversal in EUR/USD "which saw a rapid drop from 1.37 to 1.27 when the trend turned—and only modest, short-lived counter-trend corrections on the way."
Short-term EUR gains should be limited to the mid/upper 1.34s if the trend lower is to extend.
Look to sell rallies suggests Osborne.
Capital markets ensure demand for Euro is maintained
Despite the poor growth in France, the S&P downgrade and yesterday's surprising 25bp cut from the ECB, the euro has remained remarkably resilient holding above the 1.3400 level throughout the European session trade.
Boris Schlossberg points out that capital inflows continue to keep the Euro propped up on the foreign exchange markets:
"The unit continues to benefit from capital flows as foreign investors are lured by the prospect of recovery in the region as a whole.
"Therefore for now it remains exceedingly difficult for European monetary policy makers to lower the value of the currency in any sustained fashion and this dynamic will likely remain in place until the market becomes more certain that the Fed will taper by the start of next year."