Euro chewed through offers, blew up stop losses as it recovered from the post-ECB low of 1.0822 to print a high of 1.1218 levels. The question on everyone’s mind was what went wrong, especially since the ECB delivered the goods.
Announced Refi rate cut (surprise)
10 basis point deposit rate cut
QE expanded to EUR 80 billion
Announced TLTROs
The big bazooka ended up being a big failure and Draghi is being blamed for the same. The President, while addressing questions, said he does not see a need to cut rates further and that was enough for the EUR bulls, who were already skeptical about efficiency of negative rates, to send the currency pair higher. Moreover, Draghi has often done a balancing act after announcing a big bazooka so as not to heighten expectations, but that never translated into a kind of rally in the EUR we saw yesterday. The real reason is falling efficiency of negative rates as discussed here (Macro Scan).
With no major data due in the Eurozone or US, the spot is vulnerable to profit taking ahead of the weekend.
Technicals – Bearish below 1.1176
A rising trend line drawn from Mar 2015 low and Apr 2015 and extended further comes around 1.1176. 23.6% Fibo of 1.0517-1.1376 is seen around 1.1373.
Hence, repeated failure to sustain above 1.1176 would open doors for a corrective move to 1.1115 (50% of 1.1714-1.0517). A break lower would expose 200-DMA at 1.1045.
On the higher side, a move above 1.1218 could signal extension of previous day’s rally to 1.1296 (23.6% of May 14 high-Mar 15 low).
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