Euro bulls need not worry about a less likely potential disadvantage: strong verbal intervention by the ECB.
In response to a question about the rise of the euro on Thursday, ECB President Christine Lagarde said the central bank's governing council followed the euro "very cautiously", reminiscent of the language in the ECB's previous communiqu é. And cheered traders who had been preparing Ms Lagarde to crack down harder on the appreciation of the euro.
The euro's move towards its best annual performance since 2017 has sparked speculation that policy makers may be inclined to oppose appreciation because it further suppresses price levels. However, given that the ECB has no plans to cut interest rates in the short term and the risk of verbal intervention is temporarily removed, the road to further appreciation of the euro seems to have cleared the way.
The euro rose 0.5% during the press conference after the ECB's last policy meeting of the year. The long-term chart now shows that the euro is likely to move towards resistance level of $1.26.
"the central bank's governing committee did not upgrade its language on the recent rise in the euro, but emphasized what it has always said," said Ned Rumpeltin, European head of foreign exchange strategy at Toronto-Dominion Bank. "before the market is aware of the risk of stronger verbal intervention from the ECB, we may see a rapid rise in the euro, testing the 2018 high above $1.25."