FOMC in Focus as Draghi’s Comments Crash the Euro

FOMC in Focus as Draghi’s Comments Crash the Euro
October 26, 2015

Last week’s focus was on the Euro as market participants were focused on what the ECB (European Central Bank) was going to say at the press conference that was due on last Thursday.

That being said, it is worth mentioning that the markets in general, and especially Euro related pairs were going nowhere all week. That was until the ECB event on Thursday, where the interest rate announcement of “no change”, took no-one by surprise.

The press conference started. The moment the ECB’s President, Mr. Mario Draghi uttered his first words, the Euro started to fall aggressively against all other currencies listed.

The reason for that comes from the fact that Draghi signaled for more stimulus if the current inflation conditions do not change (NB:inflation came below the zero level last month, and this is well below the central bank’s two percent target). The European Central bank will review this again at the next meeting in December.

At this time, the EURUSD dropped like a rock from above the 1.13 level and did not stop until they reached levels below the 1.10 area late on Friday. It was not the only Euro pair that dropped. This, together with the EURGBP cross, are two currency pairs that we mentioned here and mentioned that we’re bearish. Well, the move to the downside came, with a contracting triangle confirmed on the EURUSD pair as the b-d trend line on the daily chart is broken now. A flat pattern is about to be confirmed on the EURGBP as the rising wedge on the daily chart has some limitations too.

Moving forward, we’re heading into a US dollar driven event this week. The FOMC (Federal Open Market Committee) outcomes are going to be released on Wednesday, and it will be very interesting how market will position before that event.

I would say that the path of least resistance before and after the FOMC will be to trade crosses and not majors. This is because crosses are not influenced by US dollar moves, of all crosses I am favoring the long side on the AUDCAD pair, and short side on EURGBP and EURJPY.

The AUDCAD is forming a contracting triangle that is about to break higher on the bigger time frames and it is not clear now if the move up is going to be driven by CAD weakness or AUD strength. It remains to be seen.

As for the EURJPY and EUGBP crosses, they are still bearish as Mr. Draghi left no open door for Euro bulls on the short to medium term.



Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world

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