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).
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.
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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).
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