In an environment of slowing growth and low inflation in Europe, the ECB has been pressured to implement further stimulus. After the monetary policy vote today, the ECB announced that it is holding the minimum bid rate at the historical low of 0.05%, and is going to be in a sit and wait mode, as the bank wants to assess the effects of the measures already in place.
Draghi reiterated that QE is on the table. The ECB might be gearing up to it. Draghi did not want to give a target for the bank’s balance sheet and noted that it will be “expanding” in the coming months. Many will take his not referencing a balance sheet target as a signal of further stimulus in upcoming meetings. The euro unsurprisingly fell.
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The EUR/USD was coiling this week after hitting a new low on the year at 1.2440. After the ECB announced its latest monetary policy, the EUR/USD fell sharply from about the 1.2530 overnight high down to about 1.24 before stabilizing a bit. There is no evidence of support just yet, but we can see that the 1H RSI heading into the oversold territory.
With the NFP event risk tomorrow, we can expect some consolidation around 1.24 as the RSI dips toward 20.
US Non-Farm Payroll (October)
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At this point the 1.2470-1.25 area will be key. If EUR/USD pulls up after the NFP tomorrow but holds below 1.25, we should be looking for bearish continuation. In the bearish continuation scenario, the 1.24 level then the 1.2285-1.23 area will be in play.
However, if price pulls back above 1.2530, we again should watch the 1.25 level for support. If it does provide support after a subsequent dip, we would have more evidence of a bullish correction or a meaningful consolidation.
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