No QE Talk from the ECB: EUR/USD Rallies

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No QE Talk from the ECB: EUR/USD Rallies

Draghi Focuses on ABS

The European Central Bank voted to hold the benchmark rate at 0.05% as expected. The market was looking for clues on whether the ECB will provide further Quantitative Easing (QE).

Mario Draghi

ECB President: Mario Draghi

More Aggressive ABS Purchases

However, Draghi did not address the consideration of QE. Instead he focused on the implementation of current stimulus measures, expanding the purchase of ABS to 2 years instead of 1. This more aggressive plan of ABS purchases might take the place of further QE, so we can read today’s ECB communication as a hint that the ECB is not considering QE. This shouldn’t be interpreted as a hawkish tone however, because the ECB is still pressured to continue stimulus measures.

EUR/USD Remains in Consolidation/Bullish Correction

The EUR/USD started the week falling to a new low on the year at 1.2571. It has since rallied to 1.2671. In the 1H chart we can say that the bearish momentum is loss as the RSI rose above 60. Price is also flirting with the 100-, and 50-hour simple moving averages (SMAs), threatening to shift away from the bearish bias by crossing above them.

EUR/USD 1H Chart 10/2
eurusd 1h chart 10/2

(click to enlarge)

Bullish Scenario: The ECB statement and press conference did not do much for the EUR/USD. Price was moving between the 100-, and 50-hour SMA. We can say it is maintaining a bullish stance relative to this week’s action as it holds above the 50-hour SMA. If price breaks above 1.2675, we should anticipate a rally toward at least the 1.2730 area, near the 200-hour SMA. This bullish scenario is already materializing as we can see in the 1H chart during the ECB presser.

Bearish Continuation Scenario: Now if the market fades the current rally back below 1.2613, we should anticipate bearish continuation with the 1.2571 low under pressure. Below 1.2570, the next support factor might be at 1.2460, which is the 78.6% retracement of the 2012-2014 rally (from 1.2042 to 1.3993).

EUR/USD Weekly Chart
eurusd weekly chart 10/2

(click to enlarge)

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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.