Euro drops like a stone after Draghi threatened with even more easing soon

Volatility was back in force in the major money markets yesterday on the back of the important events were expecting to take place. Indeed we were not disappointed with the pickup in the volatility as traders looked to position themselves after the ECB meeting and the Retail Sales report. However it is interesting to mention here that both events even though they unfolded as expected were received in an unexpected manner from the market participants.

To go into more detail, starting with the Euro that suffered huge losses yesterday on the back of the ECB meeting on monetary policy and the press conference that followed. The central bank eft the policy unchanged but the ECB President Draghi was crystal clear in his comments after the meeting: they are not only considering but actively exploring all avenues to increase the stimulus to the troubled Euro area.

As a result the Euro dropped but the surprising part was the extent of the drop that took the Single currency from the 1.1300+ area to trade below the 1.1100 level by the end of the day. It is clear to us that market participants were not positioned overly short on the currency before the event otherwise the drop wouldn’t have been so massive. Further weakness should be expected moving forward as the 1.1000 area is now the next target.

The Cable was also active yesterday in light of the Retail Sales report which printed even better than expected. However the surprise was that even though the report revealed a clear uptick in consumer demand the Pound failed to benefit from it and the 1.5500 resistance held strong limiting any gains to the upside.

To the contrary the Cable lost ground by the end of the day and traded even below the 1.5400 support area when traders realized that the 1.5500 ceiling is not getting penetrated this time either. Fundamentally the Cable still has strong support and could look to retest the 1.5500 at some point but for the short-term the pair looks weak and could retreat towards the 1.5300 area after yet another unsuccessful attempt to break into higher ground.

Economic Calendar

Share: Analysis feed

Past performance is not indicative of future results. Trading forex, CFDs and equites carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade any such leveraged products you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading on margin, and seek advice from an independent financial advisor if you have any doubts. The information provided by InvestingBetter.com should not be relied upon as a substitute for extensive independent research which should be performed before making your investment decisions. InvestingBetter.com are merely providing this information for your general information. The information and opinions presented do not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision and should tailor the trade size and leverage of their trading to their personal risk appetite. InvestingBetter.com and/or its owners will not be responsible for any losses incurred on investments made by readers and clients as a result of any information contained on InvestingBetter.com. InvestingBetter.com does not render investment, legal, accounting, tax, or other professional advice. If investment, legal, tax, or other expert assistance is required, the services of a competent professional should be sought.