June 23, 2016 marked the day every European would remember—Britain left the European Union in a vote of 52% to 48%, in favor of Leave. EU was established after the World War II to foster economic cooperation among 28 European countries. Apparently, Britain does not agree with that anymore. One of their main reasons for leaving was that they get less than they contribute, and that was not helping their economy grow. They fell into these two choices: stay and allow EU to drag down their economy, or leave and instantly fall into an economic crisis without the help of the EU. Evidently, they saw that the results of cutting ties with EU are more beneficial to them and they chose to leave.
Ever since this Brexit vote, the market has started reacting. The fate of euro went down from then on. The biggest currency impact was seen in the fall of British pound, crashing over 10% at some point against the dollar. The uncertainty about the future of the UK outside the EU and the fears of a recession had an immediate impact. EUR/USD dropped as low as 1.0910 in the aftermath, down from a peak of 1.1427. This pair hit resistance at 1.1190 after the big fall. Further resistance waited at 1.1250, which provided support before the crash. The next lines were 1.1335, 1.1410 and strong resistance waited at 1.11460.
As an effort to avoid recession, the Bank of England soon decided to cut rates to its lowest yet in seven years. The new .25% interest rate and the expansion of the central bank’s monetary easing program were announced on August 4. It did little to pull up the down trend of the following market day, but it fortunately pulled up the trend starting August 6. The poor U.S. nonfarm payroll data might have helped to the gain of the euro. By August 7, with the support at 1.1033, the trade passed the resistance at 1.1108. Looking at the daily chart, based on the parabolic SAR, the euro is in a continuously upward trend although still far from pre-Brexit highs.
With the continuous effort of European central banks, they were able to move the euro from its lowest since the Brexit vote in June. Presently, the euro is trading at 1.1129 to 1.1219, in a new support of 1.1108 and past its resistance at 1.1169. Investors are consistently on the look-out for movements from the euro-zone, particularly their released economic growth data which came out in line with expectations and industrial production data that was higher than anticipated. This just showed that euro is, albeit slowly, gaining its momentum once again after being knocked down. After all, this currency is not one of the most watched currencies for no reason.
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