EUR/USD Continues Downtrend as ECB Announces Details of QE

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EUR/USD Continues Downtrend as ECB Announces Details of QE

The EUR/USD has been consolidating this week ahead of today’s highly anticipated ECB announcement. The market has been pricing in QE, and was tentative ahead of the event risk. Mario Draghi did not disappoint. While it held the benchmark interest rate at 0.05%, the ECB announced a plan to purchase €60B/month worth of government bonds. ecb

Official Press Release: ECB Site

Summary of Details: Forexlive

The ECB will start buying bonds in March, through at least September 2016, and will total about €1.1 trillion. The details did not surprise, though it might have been slightly higher than what most expected on average.

With the QE priced in and now out of the way, will the Euro bounce back? Nope, there appears to be 1 more push. Ahead of QE, there were some caution in case of an underwhelming QE announcement. However, the details proved to be what the market expected, so that last force of support/doubt is removed.

The EUR/USD was consolidating around 1.16, with a high at 1.1675, and some common resistance around 1.1645. After the ECB announcement, price fell sharply, and EUR/USD looks poised to clear the 1.1460 low on the year.

EUR/USD 1H Chart 1/22
eurusd 1h chart 1/21
(click to enlarge)

Now, if there is a pullback, a bearish market should keep EUR/USD below the 1.1550-1.1575 area. A return above 1.16 might signal a pending consolidation. Otherwise, below 1.1550, price has downside risk towards the 1.14 handle or the 1.1375, Sept-2013 low and support pivot. Below that we would have the 1.10 handle in sight. Before discussing parity, we need to also see if the FOMC will indeed by raising rates by mid-2015. If so, parity is not a stretch for EUR/USD.

Now, let’s say price finds support in the next week or so and pulls back above 1.16. We should start considering a bullish correction scenario. In this scenario, it will be important that price pushes above this past week’s highs around 1.1650. Also, any bullish correction outlook should be limited to a max of 1.20.

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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.