23 February 2019
The euro has drawn support from Angela Merkel’s decision to run for a fourth term as German chancellor. Photo: Reuters
The euro has drawn support from Angela Merkel’s decision to run for a fourth term as German chancellor. Photo: Reuters

As US dollar takes a pause, what lies ahead for euro?

US dollar has taken a pause after gaining for ten straight days following Donald Trump’s victory in the American presidential election.

As the greenback stalled, the euro was able to bounce back from a 11-month trough and stabilize at 1.06 against the US unit.

German Chancellor Angela Merkel has announced her intention to seek a fourth term next year. The news lent some weight to the European common currency.

In France, former prime minister Francois Fillon has become the conservatives’ nominee for the presidential election in that country, facing off with Alain Juppe, another ex-prime minister.

Various polls have shown that Juppe would easily beat far-right National Front candidate Marine Le Pen.

His victory, if it happens, will mitigate worries that the eurozone will fall apart.

In the mean time, two senior officials of the European Central Bank have hinted that super loose monetary policy is necessary to support growth in the eurozone.

That has strengthened market expectations that the ECB will announce an extension of its bond purchase program next month.

The central bank’s president, Mario Draghi, has warned that the eurozone economy remains heavily reliant on the ECB’s stimulus in order to get inflation back to the targeted 2 percent.

Technical chart suggests the euro has been seriously oversold for an extended period of time, and that the downward pressure may soon begin to wane.

Key support levels for the unit are 1.05 and 1.038 and key resistances at 1.075 and 1.0848.

Elsewhere, the Australian dollar picked up slightly on the back of the US dollar pullback and a rise in commodity prices.

The 250-day moving average of 0.7435 against the US dollar would be the next resistance level for the currency, while 0.729 is the support level.

In other news, Reserve Bank of New Zealand Deputy Governor Geoff Bascand said on Tuesday that domestic households are becoming more cautious in spending despite expanding wealth.

Such development is posing a challenge for authorities in relation to inflation-targeting frameworks.

The central bank, however, believes the cautious consumption is just temporary phenomenon, and that it may not lead to stagnant growth, Bascand said.

Key resistance levels for the New Zealand dollar are 0.721 and 0.74 and the key supports are 0.68 and 0.6676.

London gold price recovered slightly after posting significant losses following the US election. The world’s largest gold ETF, SPDR Gold Trust, reported that its gold holdings have dropped 3.6 percent within this month.

The yellow metal is expected to find key support in the US$1,172-1,200 an ounce range. Meanwhile, the resistance zone would be US$1,226-1,245.

This article appeared in the Hong Kong Economic Journal on Nov. 23

Translation by Julie Zhu

[Chinese version 中文版]

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Sales director, Emperor Capital Group Limited; HKEJ columnist

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