Euro’s rally has little to slow it down
The euro is extending a rally that was little heralded at the beginning of the year and now has analysts pondering what it will take to slow the bestperforming major currency this quarter.
Yesterday, the euro touched a one-year high of US$1.1388.
For chartists from JPMorgan to RBC, there are few resistance levels remaining before the euro lifts off in a sustained rally amid fading political risks and a monetary policy shift on the horizon. With the $1.13 post-US election high having given way after five futile attempts this month, euro bears’ last lines of defence include $1.1428, a level reached as traders awaited the result of the UK’s vote to leave the European Union on June 24 last year, before the common currency advances to the $1.17 area last seen in August 2015.
The euro gained up to 1.49 per cent after Mario Draghi, the European Central Bank’s president, downplayed deflation risks and opened the way for paring stimulus in a speech on Tuesday. He said that the components that keep consumer price growth subdued are temporary and noted that “the threat of deflation is gone and reflationary forces are at play”. He also argued that policy may need to be tweaked not to tighten conditions but to keep them unchanged.
Mr Draghi’s “comments are a hawkish surprise and set up expectations of an ECB tapering announcement”, Marvin Loh, the senior global markets strategist at BNY Mellon, wrote in a note to clients.
The euro has rebounded 7.8 per cent this year and gained against all of its G-10 peers. Banks such as HSBC and UBS expect the euro to embark on a dollar-esque rally in the coming year.