ECB Fails To Allay Euro Concerns, Downside Risk Persists

Includes: FXE
by: FXstreet

The euro pushed a little bit lower on Thursday and set a fresh 2-month low of 1.2716 against the dollar after the European Central Bank decided to leave its monetary unchanged. In the subsequent speech ECB President Draghi said that the bank is ready to act but it is up to the governments to request aid to Brussels.

Despite generally favorable developments, including the Greek Parliament's approval of a new round of austerity measures, the euro failed to stage a recovery and continues to consolidate in a tight range above recent lows, printing lower lows on daily basis.

In the U.S., stocks advanced as worries about the fiscal cliff lowered and after data showed jobless claims declined last week and September trade deficit narrowed.

Euro eyes 1.2700 amidst pressure

It seems that no European news is good enough to boost the euro at this point as EUR/USD continued to march lower after Greece approved another package of austerity measures. However, rumors that Spain won't request a bailout this year probably offset any lingering optimism regarding the eurozone.

EUR/USD broke decisively below 1.2740 (38.2% retracement of the broader 1.2040/1.3171 rally) and printed a 2-month low of 1.2716 after the ECB decision. Technically, the outlook remains bearish, with 1.2700 as immediate target, followed by 1.2600 (50% retracement of the same run). On the upside, the 20-hour SMA (1.2750) is acting as dynamic resistance in the short term, while only a recovery above the 200-day SMA (1.2822) could provide relief.

The Wells Fargo analyst team supports the idea of further EUR/USD weakness. "Indeed, while worries around the fiscal cliff seem a bit lower today we still see an uncertain period ahead, suggesting strength in the U.S. dollar and yen, and weakness in most other foreign currencies".

Same direction for the EUR/USD expects Karen Jones at Commerzbank, pointing to a drop towards 1.2470/80 in the near term.

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