ECB President Draghi Gave the Green Light to Short Euro, Open-Ended QE For the Euro
Yesterday the ECB President Mario Draghi announced an extended asset purchase program. Under this program the monthly public and private bond purchases will stand at 60 billion euro and will start at March and carried until September 2016. That is 1.14 trillion Euros quantitative easing program. Main consideration of the ECB is the inflation, should we see rising inflation towards 2% then QE could end.
The Euro against the greenback dropped to a new low since September 2009 at 1.1315 and the bearish expectations by market participants remain strong on the Euro. The EURJPY went as low as 133.97 which is a fresh floor since November 2011. The program announced, it seems more dovish than what was anticipated by investors given the open ended characteristic and that has been weighing on the Euro.
Looking at the US dollar experience of the QE programs we can see on the chart below that each time the Fed was announcing a QE program the EURUSD was afterwards advancing and at the same time the Euro-zone was experiencing its own sovereign debt crisis. Now the situation is reversed, furthermore the US economy is out of the recession, employment declines and the Fed is considering a rate hike. With that in mind we still hold a bearish expectation on the EURUSD in the long term.
Looking ahead for today, we get back to normal routine, we expect the Euro-zone PMI Manufacturing and Services indicators, then we British Retail Sales exp at -0.6%, Canadian Core Retail Sales exp at 0.5% and Canadian core CPI exp at -0.3%. On the weekend we have very important Greek elections with opinion polls showing the Anti-bail out party leading the way.
Euro Recovers on Short Covering, US Durable Goods Eyed
The Euro recovered from 11-year lows as the fears for a Grexit eased. The EURUSD found support yesterday at 1.1096 and jumped to as high as 1.1293 against the greenback. We have previously said that the Euro is at extreme oversold from any angle you look at it, thus a retracement could take place at any point in time. Nevertheless, the intrinsic value of the EURUSD has lowered significantly given the recent ECB developments as well as inflation data and is vulnerable to selling attacks. We can see at the chart below that the currency pair is approaching a higher high in the intraday trading. Breaching cap at 1.1293 could trigger some further short covering.
The Australian dollar dropped yesterday to as low as 0.7860 against the greenback and clawed back some ground today recovering to cap at 0.7950. At an earlier report the National Australia Bank said that its Business Confidence index rose to 2 in December up from previous figure at 1. Investors seem a bit reluctant to take side in the FX market due to Fed monetary statement tomorrow as well as due to uncertainty of the Greek 240 billion euro bail-out program renegotiations. The AUDUSD touched a 5 ½ year low at 0.7858 as the greenback has been on rising course.
The biggest loser against the greenback on recent trading sessions was the Russian Ruble as the Standard and Poor’s cut the credit rating of Russia to junk. The USDRUB inched at a fresh record level at 68.6745. Elsewhere, the US dollar against the Japanese Yen continues in its medium term the range trading formation, between the top at 118.85 and the bottom around 117.26. The Japan’s Economy minister said that there is not a specific time plan for achieving 2% inflation and that underpinned slightly the Yen, thus the USDJPY declined from 118.66 to 117.90, the bottom could be achievable in the short term.
Concerning the data front, today we are focused on the UK Preliminary GDP qoq expected at 0.6% as well as on the UK BBA Mortgage approvals. Then the US Durable Goods Orders will draw our attention, they are expected at 0.6%. Lastly, US Consumer Confidence and US New Home Sales would be monitored.
Euro may move upward against USD after producing a bullish Morning Star. Near-term resistance is at 1.14428. Alternatively, a turn below 1.1206 clears the way for a test of 1.1074.
We expect correction on the upcoming EURUSD strength.
Every upside momentum may be considered as an opportunity to enter short at a more attractive level and remain on the sidelines in the interim.
After a short rally against US Dollar, today’s daily chart again shows a flat start after facing resistance at 1.08805. As FED has cleared the doubts regarding the interest rates, pushing the likelihood for first rate hike in October or December. Further, some major Fundamental data release would show ahead the path for EUR/USD bullish or bearish trend ahead.
Support 1.0456 1.0233 0.9984
Resistance 1.0955 1.1263 1.1513