The EU plans to intervene in markets directly to curb rising energy costs, threatening to push the Euro area's economy into a deep recession.
Lagarde’s speech pushed EUR down
2020-09-30 • Updated
ECB’s President Christine Lagarde is planning to follow the Fed’s approach and allow inflation to overheat. The Federal Reserve earlier targeted the 2% inflation, letting it to overshoot.
Lagarde claimed: “If credible, such a strategy can strengthen the capacity of monetary policy to stabilize the economy when faced with the lower bound. This is because the promise of inflation overshooting raises inflation expectations and therefore lowers real interest rates.”
Although she hasn’t imposed this approach yet, the signal was quite strong. As a result, possibly lower rates reduced the demand for the euro. Elsewhere, the German Consumer Price Index came out worse than analysts expected yesterday, marking the sharpest slump in almost five years. As you know, Germany is Europe’s largest economy, that’s why this report worried investors and weighed so much on the euro. At the same time, intense debates between Trump and Biden deteriorated the market sentiment and underpinned the USD, especially after Trump refused to approve election results in case of Biden’s victory.
The risk-off sentiment pushed EUR/USD to the downside. It has shown the worst performance in six months last week. That’s why traders have doubts that the pair will stick to its long-term uptrend. The MACD indicator has crossed the zero line to turn negative, confirming a downtrend.
On the 4-hour chart we can notice that the pair has failed to break through the 50-period moving average at 1.1710. If it manages to drop below it, the way to yesterday’s low of 1.1675 and then to the next support of 1.1615 will be open. In the opposite scenario, if it rises above the key resistance of 1.1750, it will jump to a 100-period moving average of 1.1770.
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