A decline in euro zone inflation to a five-year low in August amplified dovish comments by ECB president Mario Draghi at the Jackson Hole central bankers' meeting. Draghi acknowledged that inflation expectations have been falling at the August meeting and said the ECB, "within its mandate, will use all of the available instruments needed to ensure price stability over the medium term."
The developments fueled speculation that the ECB will consider easing action as early as Thursday with some analysts arguing that a quantitative easing – or bond buying – is on the horizon.
Growing expectations for ECB easing saw the euro/dollar decline decisively below $1.34 in August, marking a significant downtrend confirmation. The $1.34 level has acted as a long-term support and resistance, defining price activity starting in December 2011. The pair has remained in a broad trading band since September 2012; $1.34 is in the middle of this band.
The upper edge of the trading band is near $1.40, a level defined by support and resistance activity in 2010 and 2011. Starting in September 2013 the euro/dollar traded in the upper section of the trading band between $1.34 and $1.40. In May 2014 it briefly touched the top of the trading band and then started a new prolonged downtrend.
The width of the upper section of the trading band is projected downwards to set the lower edge of the trading band near $1.28. This level provided support in November 2012, and March, May and July 2013. This is a significant and well-tested support level.
There is minor support and resistance near $1.31 that helps define the development of the downtrend.
Price activity between $1.34 and $1.40 had relatively low volatility, while activity between $1.28 and $1.34 had more rapid volatility moves. This suggests that a fall below the minor support near $1.31 can move rapidly to test lower support near $1.28. Traders will be ready to add to short trades when the euro/dollar moves below $1.31.
The developments fueled speculation that the ECB will consider easing action as early as Thursday with some analysts arguing that a quantitative easing – or bond buying – is on the horizon.
Growing expectations for ECB easing saw the euro/dollar decline decisively below $1.34 in August, marking a significant downtrend confirmation. The $1.34 level has acted as a long-term support and resistance, defining price activity starting in December 2011. The pair has remained in a broad trading band since September 2012; $1.34 is in the middle of this band.
The upper edge of the trading band is near $1.40, a level defined by support and resistance activity in 2010 and 2011. Starting in September 2013 the euro/dollar traded in the upper section of the trading band between $1.34 and $1.40. In May 2014 it briefly touched the top of the trading band and then started a new prolonged downtrend.
The width of the upper section of the trading band is projected downwards to set the lower edge of the trading band near $1.28. This level provided support in November 2012, and March, May and July 2013. This is a significant and well-tested support level.
There is minor support and resistance near $1.31 that helps define the development of the downtrend.
Price activity between $1.34 and $1.40 had relatively low volatility, while activity between $1.28 and $1.34 had more rapid volatility moves. This suggests that a fall below the minor support near $1.31 can move rapidly to test lower support near $1.28. Traders will be ready to add to short trades when the euro/dollar moves below $1.31.
