Lagarde Says FX Rise Causes Inflation Drag; Could Send the EURUSD Lower

The European Central Bank (ECB) decided to leave its present policy status unchanged, despite the lockdowns that have kept much of Europe under conditions of restricted economic activity.

The ECB pledged to continue its support of the EU economy via lower borrowing costs as well as continue its stimulus program. However, the ECB also warned of an increase in coronavirus infections, and the downside risk they posed to economic activity. However, the bank’s reaffirmation of extra support to the economy pleased investors, who helped keep the Euro in demand versus the greenback.

ECB Chair Christine Lagarde may have talked down the Euro by expressing her view on FX appreciation being a drag on inflation. She has also
indicated that while inflation numbers remain very weak, appearance of new variants of the coronavirus may need more stringent actions.

Technical Outlook for EURUSD

A last-minute pushback by bulls yesterday negated the formation of a complete dark cloud cover pattern.
The downside potential was further truncated by the appearance of Thursday’s bullish candle, coming off a bounce on the 61.8% Fibonacci retracement level at 1.20991. The candle tested the 1.21685 resistance intraday but faced rejection and a pullback towards the 50% Fibonacci retracement at 1.21432.

1.21685 remains the resistance to beat for bulls. A successful breach of this area sends the price towards 1.22661, with 1.23302 and 1.24081 lining up as potential resistance targets.

On the other hand, failure to breach 1.21685 could re-establish the downtrend move that commenced on 7 January. This move requires confirmation via a breakdown of the 1.20549 support.

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EURUSD Daily Chart

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