How will the ECB's QE Announcement Impact EURUSD?

Expectations were high heading into today’s ECB meeting, but “Super Mario” Draghi was up to the task. As we all know by now, the central bank announced a Quantitative Easing program to the tune of EUR 60B per month, beating the whisper expectations of 50B/month, and most importantly, committed to buying assets for at least 18 months (for more on the ECB’s announcement, see my colleague Kathleen Brooks’ report here).

The market reaction to this bolder-than-anticipated announcement has been mixed: European equities spiked, then dropped; periphery bond yields fell to new record lows; gold rallied back to $1300; and the euro generally dropped. As of writing, EURUSD is trading at 1.1480, down over 100 pips from pre-ECB levels, while EURGBP is pressing the bottom of its 18-month bearish channel in the upper .7500s and EURCHF dropped back below the key parity (1.00) level to trade at .9850.

Technical View: EURUSD

While the situation is still fluid – indeed Draghi is still speaking as we go to press – the big QE announcement should increase selling pressure on EURUSD. The pair is just barely holding above last week’s 11-year low at 1.1460, but if that floor gives way, there is room down to the next level of minor support at 1.1375 or even the 61.8% Fibonacci retracement of the EURUSD’s entire 2000-2008 rally around 1.1200.

That said, there are some potentially bullish signs in play as well. The RSI indicator on the 1hr chart is oversold, hinting at a potential near-term bounce, while longer-term positioning is at a historically bearish extreme, suggesting that everyone who intends to sell the euro may have already done so. In our view, another short-term bout of euro weakness is likely if rates break 1.1460 support, but bears should be extremely cautious as EURUSD is ripe for vicious short squeeze.