EURO Loses Momentum Post Mixed Comments from ECB Board Members

EUR/USD has dropped back below the 1.20 handle as the dollar firms across the board with a slew of bearish headlines crossing the wires.  Currently, EUR/USD is trading at 1.1916 down 0.26% since close of yesterday’s American trading session.  While US dollar remains firm its strength hasn’t increased and there hasn’t been any major news to boost USD. This decline in EURO’s value is majorly influenced by mixed comments from Two Executive Board members of ECB on same day. On early EU session, EUR was buoyed by hawkish comments by ECB’s Villeroy who mentioned that end of net asset purchases by ECB is approaching and an increase in the ECB’s deposit rate would be at least some quarters, but not years after the end of its asset-purchase program suggesting the possibility of a rate hike in near future.

EURUSD Recovers and Then Falls

However within few hours of speech by Villeroy ECB’s Coeure mentioned that the excess cash that the European Central Bank has created with its bond purchases could hurt its monetary policy in the future by artificially limiting the movement of some interest rates and as such ECB expects its key policy rates to remain at their present levels for an extended period of time. This gave the US dollar momentum which resulted in pair moving back to state of bearish decline which was on short break post its three week stint. EUR is also under stress on the never-ending Italian political saga and political populism. As par earlier report, Italy’s populist duo (5-Star and League) has all but completed a governing plan (“contract of the government of change”) that includes a flat tax as low as 15%, a guaranteed income for the poor and a lower retirement age along with quicker expulsions for the illegal immigrants as they prepare to seek a green light to form an administration from the president on Monday.

Although Italy’s proposed tax cut to 15% may be termed as a fiscal stimulus like “Trump tax cut”, worries of fiscal discipline may be also a greater headwind than the overall tailwind. Also, on Monday, as per another report, it seems that both the parties (5-star and League) were not able to reach a consensus on a Prime Ministerial candidate. Investors are on look out for Euro zone GDP and inflation data from various European countries scheduled to release later today before making any major bets. Expected support and resistance for the pair are at 1.18945 / 1.18535 / 1.18095 and 1.19930 / 1.20045 / 1.20310 respectively.