Euro rates were put on the back-foot in today's afternoon trading session as ECB President Mario Draghi struck a decidedly more downbeat tone at his monthly press conference.
Euro exchange rates have however managed to claw their way back into contention following on from today's press conference; the resilience of the currency is testament to the continued external investor interest in the recovering Eurozone economy:
- The euro dollar exchange rate (EUR/USD) is 0.07 pct higher at 1.3585.
- The euro pound exchange rate (EUR/GBP) is 0.02 pct lower at 0.8251.
- The euro Australian dollar (EUR/AUD) rate is 0.25 pct higher at 1.5292.
(Note: Our EUR quotes are from the spot markets. Your bank will charge a spread on the rate at their discretion. However, an independent FX provider will guarantee to undercut your bank's offer, thus delivering you up to 5% more currency. Please learn more here.)
Euro forecasted to head back to 1.35
It can be argued that nothing new came out of today's ECB press conference because the bar is high for negative rates.
Nevertheless, "the fact that ECB enhanced its forward guidance means they strengthening their dovish bias at a time when the Federal Reserve is hardening its commitment to tapering asset purchases," points out Kathy Lien at BK Asset Management who reckons the EUR is due to fall back against the USD.
The improvement in jobless claims reinforces the positive outlook for the U.S. economy and labor market.
"We are still looking for the EUR/USD to drop to 1.35 in the near term and 1.33 over the medium term. 1.35 is not only a psychologically significant level but also the 50% Fibonacci retracement of sell-off between 2011 and 2012," says Lien.
What did Draghi say?
The Euro came under selling pressure as Mario Draghi addressed the markets today.
In the press conference, ECB President Draghi emphasised that they “will maintain an accommodative stance of monetary policy for as long as necessary”.
He also noted that they expect the “key ECB interest rates to remain at present or lower levels for an extended period of time”.
He emphasised that the ECB is ready to act if we witness an unwarranted tightening of short-term money markets or worsening of the medium-term inflation outlook.
"The EURUSD rate fell sharply following these comments. We think it likely that they will announce a new long-term refinancing operation in the first half of this year," says Scott Thiel at BlackRock.
Questioned about whether the eurozone crisis is over, Draghi said that he would be very cautious and that it would be premature to declare victory yet.
He suggested this caution is one reason why they have firmed up their language around forward guidance.
As long as the ECB continues hinting at taking measures to boost the Eurozone's growth prospects we would imagine that upside in the euro exchange rate crosses is likely to be limited.
That said, it would be foolish to say that a full-blown move lower is on the cards.
Investors continue to buy into the Eurozone in anticipation of a recovery, and as long as this money keeps flowing in the Euro will remain supported.