Euro exchange rates surge: EUR/USD, EUR/GBP over half a percent higher thanks to Draghi
- Written by: Gary Howes
-
From being under selling pressure to seeing a sharp rally, euro rates are today witnessing heightened volatility.
Updated: The euro was sent higher and equities lower as ECB President Mario Draghi told markets he saw no deflation risks to the Eurozone.
Market hopes for more a more proactive approach to aiding the Eurozone economy have been dashed. Are we witnessing a sea-change in sentiment towards the euro?
A look at the euro exchange rate complex shows:
- The euro dollar exchange rate is 0.6 pct in the blue at 1.3616.
- The euro pound exchange rate is 0.5 pct higher at 0.8341.
- The euro Australian dollar exchange rate is 0.04 pct higher at 1.5196.
Be Aware: All our EUR quotes are taken from the inter-bank markets. Your bank will deliver your currency after levying a spread on the rate. However, an independent FX provider will guarantee you a more competitive spread, thus delivering up to 5% more currency. Please learn more here.
Leading into the ECB decision the euro was seen trading relatively flat against the dollar with investors unwilling to expose themselves to any surprises.
Now that the decision is out of the way we are seeing selling pressure increase bringing to an end what was seen as a consolidate phase.
Analyst Craig Erlam at Alpari UK says he is bearish on the euro dollar exchange rate for a couple of reasons:
"The first is technical, with the pair having broken below the ascending trend line, following a relatively sharp sell-off, before testing this as a new level of resistance yesterday. This effectively acted as confirmation of the break.
"The consolidation that followed is typically a bearish continuation pattern. What this all tells us is that, while the pair is currently consolidating ahead of the ECB decision, there is a clear bearish bias in the market."
"This reflects expectations that the ECB will ease monetary policy or at the very least release a very dovish statement. This is the second reason why I am bearish. It’s very unlikely that the ECB will do nothing and show no desire to change their stance in the coming months, which means the likely impact on the euro will be bearish.
"If we do see a break below the flag formation, the initial target will be Monday’s lows of 1.3476, followed by 1.3458, the 38.2 fib level, 1.3378, the 200-day SMA, and 1.3324, the 50 fib level."
Analysts at UBS have also confirmed the outlook for the euro is bearish: "As bearish conditions are in place, any recovery should be limited to resistance at 1.3577. Support is at 1.3458, a break below which would extend the weakness to 1.3400 and then 1.3296."
Ahead: Draghi press conference could shake things up
While the euro exchange rate complex may be coming under pressure it must be remembered that volatility will likely remain elevated as we have the Draghi press conference ahead.
President Draghi’s press conference might also confirm liquidity-enhancing policy steps—speculation has centered around a halt to sterilizing SMP bond purchases.
"That effectively means term deposits the ECB has taken in to “fund” sovereign bond purchases will be allowed to mature, releasing EUR175-180bn liquidity back into the system," says Shaun Osborne at TD Securities, "assuming the ECB moves fairly quickly on this, we should see quite pronounced change in relative (nominal) ECB/Fed balance sheet positions in the next few months as the Fed continues to taper."
TD Securities believe that would be beneficial for the USD and negative for the EUR.
"A move to more obvious, outright QE-like policy at the ECB would contrast with the Fed’s desire to wind up its QE programme. The strategy for playing EURUSD through the ECB is to fade any gains on the policy announcement (assuming no rate change), looking for renewed weakness (below 1.35) on a move to QE-like measures announced at what should sound like a dovish press conference," says Osborne.