The ECB surpassed expectations on Thursday by cutting the overnight rate to zero from 0.05% as well as the deposit rate by 10 basis points to ‐0.4% — the rate used by banks to borrow from the ECB overnight. The shared currency tumbled sharply to 1.0822 versus the U.S. dollar after the announcement but recovered all the losses and gained a lot more during Mario Draghi’s press conference.
The ECB President announced the expansion of the QE asset buying programme to 80 billion euros from 60 billion euros per month and hinted that this could be the end of the easing cycle. On Thursday and early Friday the euro recorded significant gains against all the major currencies on recording more than 1.50% versus the U.S. dollar and 2.5% versus the Japanese Yen.
In contraction to the euro, the greenback slumped versus all the G10 currencies except the Japanese yen and the New Zealand dollar despite the good news for the country’s budget deficit. The gap between the government spending and revenue contracted near a‐seven‐and‐a‐half year low in February. The Monthly Budget Statement for February was $193.00B reversing market expectations of $‐200.00B.
EUR/USD Profits Locked before Draghi’s speech! Double Bottom Formation
The EUR/USD pair plunged immediately after the rate announcement and penetrated successfully the suggested targets, first at 1.0920, then at 1.0900 and then at 1.0825, ending the day in profit (100 pips)!Following the rate announcement by the European Central Bank – lowered its deposit rate by 10 basis points to ‐0.4% and shaving the marginal lending rate to 0.25% from 0.3% – the pair recovered heavily and surged above the significant level of 1.0900 to end the session near 1.1200.
Technically, the EUR/USD pair has made a double bottom – weekly chart – before its reversal to take out various import levels of resistance, with the neckline around 1.1400 – 1.1500 area and bottom at 1.0500. Should we see a break through the neckline, it could prompt a move towards 1.2000, based on the size of the double bottom projected above the neckline. This is roughly a 50% retracement of the move from 1.4000 high to the low at 1.0450. The key between 1.1500 and 1.2000 is 1.1700, August high.
What to watch today
Early on Friday, the German inflation rate will be out. In UK the only notable macro‐update is the trade balance number. In Canada, February’s employment report will be published. The unemployment rate is expected to remain stable at 7.2% while the net change in employment to add 5.5k from ‐5.7k the previous month.
In U.S., the flash University of Michigan Consumer Sentiment Index for March will be out, as well as February’s export and import prices indexes.
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