EUR/USD broke out of the key resistance level of 1.1975 and surged to the 1.203 area after the ECB decided to hold its interest rate unchanged during its two-day meeting.

The ECB meeting also proved an important event in giving the market a good sense of the overall policy direction, and hints on the central bank’s tapering plan. 

ECB Governor Mario Draghi tried to strike a balance between indicating plans to begin scaling back the quantitative easing programme and trying to calm the market over the strength of the euro. He acknowledged that continuous appreciation of the euro could bring about uncertainties, but this won’t stop the Governing Council from forming a tapering plan. Market participants expect more detail from the October meeting. 

The euro has appreciated over 14% against the greenback and more than 10% against its trade-weighted peers this year. A strong currency would probably bring negative impact to eurozone exports and dampen the outlook of economic recovery in the months to come.  If economic growth slowed down as a result, the central bank might have to reassess the impact and adopt a more dovish stance in respect to monetary policy.

The dollar index sank to the 91.4 area – a level not seen since January 15. The weak dollar and geopolitical concerns fuelled the rally of precious metals. The gold price surged to US$1350 before cooling off to US$1348 this morning. 
Technically it has broken out above the key resistance level of US$1,336 and thus left room for more upside towards the next resistance level in the $1,369 area.

Stock-market sentiment remains fragile across the board as investors stay cautious ahead of 9 September, when South Korean agencies expect another intercontinental ballistic missile (ICBM) launch from Pyongyang. 

Technical Analysis:

EUR/USD

  • Broke out above the 123.6% Fibonacci Extension level of 1.200
  • 10-Day Simple Moving Average sloped upwards
  • SuperTrend (10,2) remains in a bullish set-up, suggesting an uptrend is intact
  • The next resistance level could be found at the 1.211 area


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