EUR/USD’s Reaction to ECB’s Press Conference Suggests Further Downside

EUR/USD's Reaction to ECB's Press Conference Suggests Further Downside

The European Central Bank (ECB) just concluded its press conference, and the EUR/USD looks like it is poised to continue the recent bearish trend. The ECB held rates and essentially said that a lot of these problems challenging the Euro Area’s recovery cannot be solved by the ECB, though QE is still on the table. Draghi tried to downplay the disinflation risk, maintaining that medium and long-term inflation expectations are in-line with the 2.0% target (Yea, okay. Somehow the medium-long-term expectation always goes to the appropriate level. This just shows the ECB is confident it can maintain price stability).

The EUR/USD was bullish in the session (8/6)  before the ECB risk, but traded sideways just under 1.3390 during the 8/7 session. During the press conference we saw a bullish attempt to push above 1.3390 rejected violently. Then, it looks like price is settling back to its bearish mode.

EUR/USD 1H Chart 8/7
eurusd 1h chart 8/7

(click to enlarge)

The 1H chart shows a market that has maintained the bearish trend and momentum in the near-term based on the moving averages and the RSI reading. The 1H candle following the presser also suggests more downside risk in the short-term.

Even if the ECB does not intend to implement further stimulus measures, the EUR/USD might still be bearish due to a strong USD. It is way before time for the ECB to consider rate hikes, while the FOMC is considering doing so in mid-2015.

EUR/USD Daily Chart (8/7)
eurusd daily chart

(click to enlarge)

In the short-term, there is downside risk toward the 1.3295-1.33 area, lows from Nov. 2013. If we get some better data from the Euro Area, and if risk appetite in general improves, we might see some short-term consolidation then. However, in the medium-term, price still has downside risk toward the 1.31-1.3105 lows form Sept. 2013.

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