EURUSD is up over .75% from the day’s lows to 1.1571, while EURGBP is almost 1% higher at .8921 after the ECB’s Mario Draghi provided some mixed messages.
Markets were expecting Draghi to talk down the Euro, especially given its recent surge to fresh 2017 highs and from the initial statement release the Euro was selling off. There was no change to actual policy but that was never expected, however comments suggesting the ECB “sees QE running until the end of December or beyond if needed” and “QE can be increased in size, duration if outlook worsens” resulted in some early Euro selling. There were several other notable dovish comments during the press conference from Draghi as he highlighted that a “substantial degree” of accommodation is still needed in the Euro area, and that underlying inflation remains low. These certainly come across on the dovish side of sentiment especially when it was capped off with a comment that the tapering of QE has not even been discussed, however the Euro reaction suggested anything but.
Autumn is Coming
Despite all of this however, it would appear that the bulls are in control and Euro demand continues to drive the Euro higher. We mentioned this morning that ECB rhetoric would need to be aggressively dovish to shift Euro sentiment and it appears that Draghi did not deliver the dovish stance aggressively enough, however it was the statement that the ECB governing council would make a decision in Autumn that really saw Euro support, enhancing the markets belief that the ECB will announce tapering in their September or October meeting. When the reduction of asset purchases will begin however will be the major question on everyone lips. It is unlikely they will want to taper stimulus before the year end and the current program runs its course, and anything further is an expansion of the ECB’s balance sheet and additional easing for the region, albeit at smaller levels. Draghi said the governing council will continue to monitor data, and the more data they have the better but for the Euro however any move to tapering appears to be taken by the market as a step towards normalisation of policy and eventually rate hikes. We are likely years away from that point but the Euro doesn’t care right now.
Key levels to watch for EURUSD remain the 2016 high at 1.1616 and the 2015 high at 1.1714 to the upside, while support between 1.1375/1.1400 offers a base for bulls to hold on to.
EURGBP topside will be looking towards .8940/50 for sellers, a break above there exposes .9035/65 area where we saw Euro supply through 2016. .8740 provides firm support to any move lower.