EUR/USD: inflation in the Eurozone is still low to change the parameters of the QE program

EUR/USD: inflation in the Eurozone is still low to change the parameters of the QE program

15 March 2018, 12:51

Speaking on Wednesday at the conference, ECB President Mario Draghi again drew the attention of investors to low inflation in the Eurozone, as well as to the increased risks for the European economy in connection with the prospect of a new trade war with the United States. "Among the risk factors for the outlook for inflation are new US trade measures, the strengthening of the euro. We will adhere to the order that is outlined in our leading indications, namely, our promise to maintain interest rates at current levels for a long time after the completion of net purchases (bonds)", Draghi said.

Thus, on the part of the ECB leadership, the ECB's commitment to a soft monetary policy is again and again being confirmed. Interest rates will not increase "for a long period of time", Draghi said last week, when the ECB's regular meeting on monetary policy was held.

In response to Mario Draghi's declarations, the euro is falling against the dollar, but the deeper decline of the euro is constrained by its growth in crosses against other currencies, primarily commodity ones.

Friday (10:00 GMT) is expected to publish important inflationary indicators for the Eurozone, including labor costs (in the fourth quarter), consumer price indices for February. According to these data, consumer inflation in the Eurozone remains low. It is expected that the consumer price index in February rose by 0.2% (against the decline of -0.9% in January) and by 1.2% in annual terms. However, the publication of these data, despite their importance, will most likely provoke a weak market reaction, since this is a later release, and the data is already included in the prices. Volatility may increase in case of deviation from the forecast values.

Investors are beginning to prepare for a meeting of the Fed, which will be held next week (March 20-21). It is expected that the Fed will raise the rate by 0.25%. Market participants will carefully study the text of the Fed's accompanying statement on this decision in order to understand the prospects for monetary policy.

Until the end of this week, EUR / USD is likely to remain positive, staying in the zone above support levels 1.2330 (EMA200 on the monthly chart), 1.2310 (EMA200 on the 4-hour chart).

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 Support and resistance levels

EUR / USD remains positive dynamics, trading above support levels of 1.2330, 1.2310. Long positions are relevant. The first signal for the opening of short positions will be the break of the short-term support level 1.2348 (EMA200 on the 1-hour chart). In case of breakdown of the support level 1.2310 (EMA200 on the 4-hour chart), EUR / USD will go to the lower border of the range formed between the levels 1.2550 and 1.2200 (Fibonacci level 50% of correction to the EUR / USD drop from 1.3900 in the last wave of decline since May 2014).

The breakdown of support level 1.2200 (50% Fibonacci level) will significantly worsen the outlook for EUR / USD and provoke a decline to support level 1.2100 (the bottom line of the descending channel on the daily chart).

Nevertheless, while EUR / USD is trading above support levels 1.1870 (200-period moving average on the daily chart), 1.1790 (Fibonacci level of 38.2%), a long-term bullish trend persists.

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