The European Central Bank (ECB) held its key interest rate at its historic low of 0.05%. During the subsequent press conference, Mario Draghi explained the bank’s current stimulus measures. Recording of the ECB Press Conference (12/4).
Draghi explained that the ECB is still currently expanding its balance sheet, and that the ECB’s governing council is going to see how these current stimulus measures pan out before considering full out bond purchases (QE). He loosely put a date to be early 2015 when the council will reevaluate the stimulus measures. That essentially puts QE off for the next couple of meetings, unless things turn really south. The ECB is avoiding QE in 2014, but if we look at the broad picture, it is still implementing stimulus – call it QE lite. The euro should still be pressured, or if it is going to rebound, it should be limited.
EUR/USD-Reaction: The 4H EUR/USD chart shows that price was stalling at a new low on the year around 1.23 heading into the ECB statement and press conference. Note that this week’s decline broke below a month-long consolidation range roughly between 1.2360 and 1.2577, signaling bearish continuation.
The current rally is thus testing the commitment of the breakout for a bearish continuation. Now, as price pushes into the 1.24-1.2450 area, we can see that EUR/USD will be testing a couple of falling speedlines. If the market is stay on the bearish continuation scenario, price should probably hold below 1.2450, allowing for some intra-session violation due to volatility, which we should expect tomorrow because of the US NFP.
(click to enlarge; source: forexfactory.com)
Anticipation of NFP’s impact on EUR/USD
Now, job data has not been as important lately. It has continued to show decent recovery in terms of employment numbers, but the FOMC is now focused on wage growth and inflation. Therefore, strong NFP data might not impact the USD as much as negative NFP might.
The NFP print last month missed forecasts and the USD essentially consolidated throughout the month. If it misses again, and is around 200K or less, then the EUR/USD might have a strong chance of breaking through 1.2450 and returning to a consolidation mode for the medium-term.
However, if the data is around 230K or better, and we see the market hold EUR/USD below 1.2450, the pressure should remain towards 1.23, with risk of breaking lower, but it might be choppy unless the NFP data is much better than expected like 260K or better.
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