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EURUSD Falls Despite ECB President Lagarde’s Seemingly-Hawkish Speech. Why?

EURGBP Rebounds

There is euro weakness across the board at the wake of ECB President Christine Lagarde’s speech at the European Parliament Economic and Monetary Affairs Committee. EURUSD dropped from its Asian session highs at 1.1013 to 1.0993 as of this writing.

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Lagarde: “Growth and Inflation In Line With Expectations.”

According to the ECB President, economic growth in the euro zone is in line with their expectations. She acknowledged risk factors that could dampen expansion, like the coronavirus, but affirmed that domestic growth is stable. With regards to inflation, Lagarde described consumer prices as being subdued but still within their projections.

More importantly, she mentioned that the current environment of low rates by central banks all over the world gave the ECB very little room to maneuver. She hinted that the central bank has very few options left to stimulate the economy if it slows down. This should have been bullish for EURUSD because it suggests that the ECB is not inclined to cut rates any time soon. However, the currency pair continued to fall. In fact, it formed a shooting start on the 15-minute chart which is considered as a bearish candlestick in forex trading.

De Guindos: “Negative Rates Weighing Down Profitability.”

It could be because ECB Vice President Luis de Guindos highlighted the risks of the ECB’s negative rates. In a separate speech in the XXVI Santander Iberian Conference, he said that lower profitability by European banks is a concern. He also remarked that the “banks’ valuations remain depressed.”

Consequently, EURUSD fell below its opening price for today. On the hourly time frame, we can see that it is testing support around the 1.1000 psychological handle where it bottomed on January 29. A close below today’s Asian session lows could trigger a bigger sell-off to support at 1.0880 where EURUSD made lows on September 30. On the other hand, if the market is able to shrug off de Guindos’ remarks and bounces off 1.1000, we could see EURUSD trade higher. There is near-term resistance at 1.1030 where the 200 SMA and 61.8% Fib are (when you draw from yesterday’s high to its intraday swing low).