The Euro continued to gain against the US Dollar on Friday as traders reacted to the European Central Bank’s (ECB) monetary policy announcement the day before. The EURUSD gained roughly 0.25 per cent on the day, ending the volatile trading week with the pair up 0.07 per cent.

It was widely speculated that the ECB’s chief Christine Lagarde would talk down the Euro during the Thursday meeting in light of comments made by the bank’s chief economist Philip Lane earlier last week that the rise in the Euro may be detrimental to recovery efforts in the economic bloc. The news triggered a wide midweek selloff in the EURUSD as traders assumed that any rises above the 1.20 mark will be met with heavy resistance.

In effect, Lagarde went against expectations by stating that the central bank would not be targeting the exchange rate while other sources familiar with the topic said that the policy makers at the ECB agreed to allow the rise in the Euro given that it was reflective of the current economic fundamentals.

On the basis of the rather hawkish tone by the ECB on Thursday, bulls flocked back into the EURUSD making a strong statement by pushing the pair up to the 1.20 mark before selling pressure drove it back down towards the 1.18 level after a disappointing session for the US stock market reduce investors’ risk appetite.

From a technical perspective, the follow through buying seen in the EURUSD on Friday confirmed the minor trend in the pair is up. The next significant level to test will be along the upward pitchfork channel around Friday’s high of 1.18742. Price action at the 0.382 Fibonacci retracement level at 1.18548 will provide traders with early signs of whether a breakout is feasible.

Next week’s trading range will likely fall between the 1.18 and 1.195 levels, with the trigger point for further increases in the EURUSD being a strong overtake of the 1.1917 mark. Traders may look to cautiously long the pair at the current price point for a target of 1.18742 early next week. On the flipside, a move under 1.1810 will signal the strong presence of sellers may even trigger a push towards last week’s low 1.17527.

Looking ahead next week, traders will have the opportunity to react to the US Federal Reserve’s monetary policy statement on Wednesday and Eurozone’s inflation indicators on Thursday.

Support & Resistance Levels:

R3       1.20147
R2       1.19141
R1       1.18522
S1        1.17851
S2        1.17118
S3        1.16871

Analysed by: Mr. Thibault Moirez, Independent Analyst