Euro’s rally has lit­tle to slow it down

The National - News - Business - - The Markets -

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.

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