24.01.202010:57 Forex Analysis & Reviews: Euro accepted the fight and... lost?

This weekend proved to be a testing time for the single currency. The most important of them was the speech of Christine Lagarde, head of the ECB. The results of the further decisions regarding the Euro zone's monetary policy turned out to be very deplorable for euro, and its fall was not long in coming.

After the ECB meeting, it became known that the regulator kept the interest rate unchanged, and reduced the deposit rate for banks by 0.5%. Such a decision will remain in effect until inflation in the Eurozone reaches the target level of slightly below 2%. As a result, we should not expect any increase or reduction in rates in the near future. Asset buyback programs will also remain unchanged. According to Lagarde, if the economic background improves, the program of quantitative easing (QE) will be curtailed, and only then can we return to the issue of raising rates.

One of the most important measures taken after the ECB meeting is to review the current monetary policy strategy, which has not been updated since 2003. Of course, over the past 17 years, a lot of questions have matured and there are a huge number of changes that need to be taken into account. According to the regulator's plans, the review will last throughout 2020 and will cover the most "pressing" issues, ranging from the inflation target to virtual currencies and the fight against climate change.

The financial and economic storms that were raging in the Eurozone could not but affect the single currency. After the ECB meeting, the euro, which held steady near the level of 1.1090, slid sharply down.

On the evening of Thursday, January 23, euro began to capitulate, dropping its points. The EUR/USD pair fell to 1.1042, losing its previous gains.

Friday morning, January 24, did not bring positive results to the classic tandem. The EUR/USD pair moved slightly up, running in the range of 1.1049–1.1050. Now, the tandem is trying to leave this range, but the attempts remain unsuccessful.

The gloomy picture that has developed around euro, however, does not add to the pessimism of the markets. Many experts believe that the decline will be followed by a rise, and the European currency will regain its position. Although euro fell by more than 1% on January 2020, experts note its huge growth potential. Of course, negative rates and high volatility have added a fly in the ointment to the Eurozone's financial honey, and turned the euro into a funding currency. However, experts believe that the final defeat of the currency is not worth talking about. According to their calculations, even minor signals indicating changes in deposit rates can give a second wind to the single currency. They consider them to be the spark that will ignite the flame of the new impulse needed to overcome the gravity of the current low range of the euro.

Analysts conclude that the talks regarding the complete failure of euro is premature. They quote this situation as: "the currency may have lost the battle, but not the war." Experts are sure that the single currency will have an opportunity to show itself, demonstrate its potential, and win back its losses.