Euro Retreats on ECB’s Decision on Greek Debt

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Euro Retreats on ECB's Decision on Greek Debt

The European Central Bank (ECB) announced that it will no longer allow banks to use Greek government debt as collateral for loans.
greece_flag_eu
Here are the points from the ECB’s press release late Wednesday (2/4):
– Suspension is in line with existing Eurosystem rules, since it is currently not possible to assume a successful conclusion of the programme review.
– Suspension has no impact on counterparty status of Greek financial institutions.
– Liquidity needs of affected Eurosystem counterparties can be satisfied by the relevant national central bank, in line with Eurosystem rules.
This decision will apply as of Feb. 11.
(ECB Press Release)

This is a reminder that the new government in Greece has to deal with its bailout program. It is no surprise that traders faded the Euro following the comments.

When we look at the 4H EUR/USD chart, we can see that price has entirely reversed the 2/3 rally during the 2/4 session. Failure to hold above 1.14 shows the inability of the EUR/USD to remain bullish. Price is also cracking a rising speedline, and flirting with the 50-period SMA.

EUR/USD 4H Chart 2/4
eurusd4hchart02042015
(click to enlarge)

Even after this dip, the EUR/USD still has bullish technical conditions for the short-term, at least ahead of Friday’s US NFP jobs report, as long as it holds above 1.13.

Barring more unscheduled headlines, we should expect volatility to decline ahead of the ECB. EUR/USD should stay above 1.1265 but below 1.1540 ahead of the ECB, and will likely hover around the 1.1450 area.

It will be interesting to see what happens afterwards. A break below 1.1265 could revive the prevailing bearish trend. If price holds above 1.1265, the pressure should be back towards the 1.1540 high, with risk of breaking higher, to 1.1650.

The dip in EUR/GBP is more convincing of further downside risk.

EUR/GBP 4H Chart 2/4
eurgbp4hchart02042015
(click to enlarge)

The EUR/GBP broke below 0.75 and a rising flat pattern support, exposing the 0.74 low.

There is still the Bank of England monetary policy meeting coming up. But as you can see the GBP was strengthening even before the ECB’s comments today. Let’s see what happens after the statement. A reaction that pushes price back above 0.7520 should reflect continuing consolidation. Otherwise, we should expect the 0.74 level to be tested with risk of breaking low.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.