Draghi Drags Down the Euro with More Talk of Stimulus

Draghi Drags Down the Euro with More Talk of Stimulus

Mario Draghi spoke today focusing on a need to raise inflation. The ECB president suggested that it would expand its asset-purchase-program in an attempt to “raise inflation expectations as soon as possible”. Furthermore, large-scale government bond purchases (QE) is still on the table.

Draghi is signaling more stimulus, and even though he’s avoiding QE for now, the ECB is still broadening its current stimulus measures, which adds pressure on the euro.

Let’s take a look at the reactions in EUR/USD and EUR/GBP.

The 4H chart shows the EUR/USD falling sharply from about 1.2550 at the start of the European session, to about 1.2420 following Draghi’s speech.

EUR/USD 4H Chart 11/21
eurusd 4h chart 11/21
(click to enlarge)

This is a bearish continuation signal as price action appears to be breaking up the consolidation structure that EUR/USD was in during the past 2 weeks.

Note that price action has returned below the cluster of 200-, 100-, and 50-period simple moving averages (SMAs) in the 4H chart. 1.25 has become a likely key pivot. It is a support/resistance level, and where the 100-, and 50-period SMAs reside in the 4H chart. If price returns to this level, we should expect sellers if the EUR/USD is indeed back in the bearish mode, and it certainly looks that way after today’s dip.

EUR/GBP Daily Chart 11/21
eurgbp daily chart 11/21

(click to enlarge)

The EUR/GBP found a price bottom and rallied in November. However, as it closed in on the 0.8035-0.8065 area, it was testing a multi-month resistance as you can see on the daily chart above. The daily chart shows that the 0.79 area might present some support. If price can hold above this level, the pressure might still be back towards the multi-month resistance area.

A break below 0.79 would revive the bearish outlook, suggesting at least an attempt to test the 0.7766-0.78 lows on the year.

EUR/GBP 4H Chart 11/21
eurgbp chart
(click to enlarge)

The 4H chart shows the EUR/GBP reacting to fundamental releases and events this week. It was a combination of news and the fact that EUR/GBP was at key resistance that has dragged the pair.

Still, a hold above 0.79 and break above 0.80 might continue a bullish theme, Otherwise, today’s price action has shifted the short-term mode to bearish, and the medium-term mode remains neutral-bearish, bearish because of the prevailing 2014 downtrend.

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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.