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Euro flies higher - and could continue to rise

The euro hit a two-and-a-half high against the dollar on Friday, after upbeat comments from European Central Bank (ECB) President Mario Draghi at his news conference. Analysts said the euro could be set to power still higher.

The euro rose to $1.3915 on Friday - its highest level since October 2011 - after the central bank upped its growth forecast for the euro zone in 2014, and kept rates unchanged.

"I do see the euro moving higher, we had quite a bit of technical damage done right after the ECB press conference, as we broke through the $1.38 barrier," Michael Woolfolk, senior FX strategist at BNY Mellon, told CNBC.

(Read more: ECB ups 2014 growth forecast, inflation to pick up slowly)

"The market is now probing into what the new ceiling is going to be for the new trading range, it wouldn't surprise me to see the euro testing the $1.40 level in the next week or two," he added.

The euro fell back against the dollar on Friday following stronger-than-expected employment data out of the U.S., but remained 0.5 percent higher.

Jane Foley, senior currency strategist at Rabobank, said that although the U.S. jobs data was positive, it was perhaps not enough to shore up the dollar.

"For the dollar to turnaround, the market needs to see a whole catalog of strong U.S. data – what we've seen recently is the market revising down its first-quarter growth forecast for the U.S.," she told CNBC.

(Read more: Euro to strengthen even on ECB easing?)

"If there is another month or two of weak data, we could certainly maintain this higher trading range for the euro/dollar," she added. Over February, the euro has gained almost 2.5 percent against the dollar.

Bloomberg | Getty Images

In a press conference following the ECB's rate decision, Draghi revealed that the bank's gross domestic product (GDP) growth forecasts had been revised up to 1.2 percent for 2014, a tenth of a percent higher than the December forecast.

(Read more: Euro zone business activity strongest in 32 months)

Meanwhile, the bank's inflation forecast for 2014 was also revised down a tenth of a percent from December to 1 percent, and Draghi insisted that inflation would return to more normal levels in the medium term.

Kathleen Brooks, research director for U.K. and E.M.E.A. at Forex.com, said markets had been factoring in the risk that Draghi could talk down the euro at the meeting, much like he did back in February 2013, when he triggered an 800 pip decline over the next six weeks.

"Instead the upward revision to the growth and Q4 2016 inflation outlooks has triggered a rally in the euro, which is now at its highest level of 2014 so far," she said.

Draghi said inflation would reach 1.7 percent by the end of 2016, within sight of the bank's 2 percent target.

(Read more: Euro soars as Draghi plays down deflation talk)

"A weekly close above $1.3830 – a critical area of resistance…would be an extremely bullish development that could trigger another leg higher for this pair," she said, adding that a move to $1.40 would be a key psychological level.

However, according to Tom Williams, sales trader at Go Markets, even though Draghi's inflation forecast gave traders an immediate boost, he said there was a risk the euro will fall in the long term.

"The euro is unlikely to remain supported unless data can prove that the block can grow in line with forecasts and levels of unemployment will not spiral out of control," he added.

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