In the wake of the ECB and Draghi keeping EU rates on hold, the real rhetoric revolves around the European Central Bank expanding its quantitative-easing program to exceed 2.2 trillion euros ($2.4 trillion) by the end of 2017, buying at a reduced monthly pace with the caveat that it can step up or prolong purchases if needed.
The Governing Council will extend the program from April at a slower speed of 60 billion euros ($65 billion) a month from 80 billion euros. Now apparently this is not ‘tapering’ this is simply pushing the time scales out. Looking at the charts it’s hard to argue the traders of the world see it this way.
The EUR/USD was severely punished after a thin market spike pushed the EUR to 1.0873 the EUR pulled back quickly to 1.0862 (the 50% Fib) to then make new lows below 1.073 and then extending on nicely to the 161.8% Fib expansion point 1.0663. From here the news leaves traders with a decision point, is the future for the EUR as most analysts believe, bleak are we are on a one way journey to parity?
I can only see the relationship within the EU disintegrating. Greece, Spanish unemployment, France in political disarray, the Italian banks, BREXIT… all of this is too much for 60BN EUROs to fix.
What I foresee if the EUR/USD breaking recent lows at 1.0499 and then carrying on consolidating but breaking lower at every turn of events. Draghi spoke today about uncertainty everywhere – I think he fails to realise a large proportion of this is from the ECBs actions and it current trend of money will fix all problems.
I think once the UK pulls itself together and trigger article 50 then the GBP will hit some resurgence. It’s still a sell and would expect it to touch 1.23125 ad potentially 1.2 before we see a bounce, but I would certainly see global buyers buying the GBP over the EUR.
The USD remains strong. Against the crumbling Japanese economy the US looks like it can do no wrong. 122 and above is the target here. With $50bn of investment from Japan in the US it looks like everyone is banking on Trump pulling this absurd turn in global events off! Good luck to him.