Euro Exchange Rates and ECB Decision - Forecasts for EUR vs US Dollar and British Pound Updates

See below for an easy-to-grasp assessment of the fresh actions to be taken at the ECB - and importantly - fresh forecasts for the euro dollar exchange rate in the wake of recent moves.

Here are the latest foreign exchange rate levels at the time of writing (07/09 - percentage change on previous days close is indicated):

1. The euro to dollar exchange rate (EUR/USD): At 1.2953.
2. The euro to pound exchange rate (EUR/GBP): At 0.7934.
3. The euro to Australian dollar (EUR/AUD): At 1.3828.
4. The euro to Canadian dollar exchange rate (EUR/CAD): At 1.4109.

If you are holding out for better rates DON'T HESITATE: Ask your FX provider if they have the relevant stop loss order to protect against downside losses and the relevant buy order to take advantage of your optimal rate when reached. In addition, bypassing your bank can deliver up to 5% more FX.

The ECB Decision - What Happened?

• The ECB cut its three key intrest rates by 10 basis pounds
• The refinancing rate has been cut to 0.05%
• The marginal lending rates has been cut to 0.30%
• The deposit facility has been cut to -0.20% making it even more expensive for banks to park cash at the ECB

The BIG reason for the selloff was however the unexpectedly agressive move to grow the UK's balance sheet (i.e the amount of euro's it will flood the economy with).

• The ECB is aiming to restore its balance sheet to around about the size it was in 2012
• The ECB will pump cash into the economy by buying up Asset Based Secrurities (These are those loans which banks package up into a financial product and then sell onto the ECB).
• The ECB will step up purchases of covered bonds

What Will the Impact on the Euro Exchange Rate Be? (Bounce Forecast off Support)

The euro plummeted against the dollar, pound sterling and a whole host of currencies in the wake of the above announcements.

Be in no doubt - those who betted against the euro at the start of 2014 are booking some incredibly lucrative profits. One such institution is Morgan Stanley who saw their 1.3100 target on two EUR/USD short positions that were in play.

Morgan Stanley told clients they are now closed on the trades having booked a 520-pip profit on its medium-term trade and a 260-pip profit on its short-term trade.

The reason for getting out of the trade is that many are now expecting a rebound in the euro to shape up. Morgan Stanley comment:

"While one could argue that the ECB’s credit-easing measures do not have a direct impact on the currency, Draghi’s reference to taking the ECB’s balance sheet back up to 2012 levels and his highlighting the “significant and increasing differences” in the monetary policy cycle between major advanced economies suggest that the EUR is viewed as a major part of the monetary policy transmission channel, in our opinion. This implies sustained EUR weakness.

"While we have taken profits on our short EUR/USD position at 1.3100, we maintain our long-term bearish view, expecting a decline to 1.20 in 2015.

"However, given the likely near-term constraints of extreme short positioning, we await a rebound to re-enter bearish strategies."

The important issue to note from a technical perspective is the looming support line that is found at around the 1.28 level (see below). Traders will be wary about entering fresh short positions as we approach this level, so the selling pressures could well ease.

But - a break of here could open the floodgates to yet deeper selling.