EUR/USD ranging as ECB’S Knot warns of monetary policy dependance

EUR/USD ranging as ECB’S Knot warns of monetary policy dependance
Written by:
Michael Harris
4th July, 22:05
  • The pair has spent the entire week trading in the $1.12s
  • Dutch central bank Governor Knot warned Europe not to rely too much on monetary policy
  • The sellers may be in control of the price action after the bulls failed to force higher closures

EUR/USD price is trading slightly higher today. Yesterday, the price action failed to close above the $1.13 mark, which paved the way for a decline below the $1.1250 mark. 

Fundamental analysis: Knot issues a warning

The Dutch central bank Governor Klaas Knot warned Europe that it shouldn’t rely too much on monetary policy. Accordingly, monetary policy shouldn’t be seen as the key weapon against the economic fallout.

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“Such a perception is risky, as it leads to ratcheting up of debt levels and excessive leverage, as has been observed in segments of the corporate sector,” he said.

The “central bank put” is a dangerous idea, says Knot, as it facilitates market and financial distortions. 

Knot’s stance isn’t surprising as he is seen as a conservative. He also said that the Pandemic Emergency Purchase Programme (PEPP) may not be fully utilized.

In the meantime, around 1,400 operations have been approved to mobilize the Eurozone’s economy. These activities are part of the European Fund for Strategic Investments (EFSI) that is worth around €500 billion.

“The Investment Plan for Europe is a success. Over the past five years, it has enabled the financing of hundreds of thousands of businesses and projects, delivering on our ambitions of making Europe more green, innovative and fair,” said President of the European Commission Ursula von der Leyen.

Technical analysis: The ranging mode continues

EUR/USD has been trading mostly within a range in the past week. The pair bounced off the $1.1190 support but couldn’t exceed $1.1300 either. Ultimately, the price action closed at $1.1243, which is 0.24% higher on the week.

Still, the buyers have been successful in closing the week above the $1.12 mark, which is where the 100-WMA is located. Thus, this indicator will now act as support for the buyers, while the 200-WMA sits on the other side at $1.1330.

We will see what will happen next week as the USD closed higher across the board on Friday on the back of a strong jobs report

Summary

EUR/USD is still trading in $1.12s as the ranging mode continues. The price action is stuck between two weekly moving averages, although multiple failures to close above the $1.13 mark may create bigger problems for the buyers in the coming weeks.

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