Talking Points:
- This morning’s ECB rate decision saw little change in actual policy, but we did see a tweak to the statement that indicates a more optimistic, slightly less-dovish European Central Bank. This created quick moves of strength in both EUR/USD[1] and EUR/JPY[2]; but that strength quickly dissipated as the accompanying press conference began with Mario Draghi at 8:30 AM ET.
- For those looking to fade the Euro[3] with expectations of bearish continuation following this morning’s post-ECB reversal, EUR/JPY may be more attractive than EUR/USD. Both pairs are investigated below.
- Are you looking to improve your trading approach? Check out Traits of Successful Traders[4]. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide[5].
If you’re looking for longer-term analysis on US Stocks, the Euro or the U.S. Dollar[6], click here for our Trading Guides[7].
EUR/USD Rally on the Statement, Reverse on the Presser
There were few expectations for any significant change at this morning’s European Central Bank rate decision[8]. So this is probably why such a small, subtle alteration has kick-started some volatile price action[9] in the single currency. This morning’s statement out of the ECB[10] removed a key phrase that had previously alluded to the possibility of more QE should the economic back-drop worsen. The exact phrase was: “If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the Asset Purchase Programme (APP) in terms of size and/or duration.”
This removal of this phrase was the bulk of the change in this morning’s statement; at least from what was seen at the January rate decision. And subtle as it may be, the near-immediate response in the Euro was a fast-move higher as EUR/USD perched above 1.2440 shortly after the release. Much of this strength was reversed after the accompanying press conference began at 8:30 AM ET, leaving us close to where we had started.
EUR/USD One-Minute Chart: Rip on the Statement, Dip on the Press Conference (Red)
Chart prepared by James Stanley[11]
EUR/JPY also rallied, albeit less enthusiastically from what can be seen in EUR/USD. EUR/JPY is currently finding sellers in a longer-term zone of prior support. The level of 132.05 is the 50% retracement of the 2014-2016 major move in the pair, and this price had helped to set support on multiple occasions as we closed out last year. More recently, this area has helped to produce resistance[12], and with a revisit to this zone, the door can open for short-side plays; making this one of
