EUR/USD had an incredible range of 460 pips on the ECB’s upset, nearly reaching 1.10 on these 10 points. Draghi and his colleagues had created huge expectations but eventually showed a lack of vigilance, to say the least.
From here, we are seeing a correction. This may be temporary, before the next move higher. But what can bring the pair down? Here are three potential downers, if the pair were to fall:
- Draghi backtracking?: ECB president Mario Draghi speaks in New York City later in the day and he can re-iterate his promise to do more. Will markets listen? Yesterday, the open door for more action provided only a small drop that was quickly erased. Action in the spring is not like action now.
- A rethink about re-investments: The ECB thought that it could encourage markets and play down the euro by announcing that it would re-invest the proceeds from maturing bonds, thus pledging a higher balance sheet. This was ignored so far and was overshadowed by the lack of new QE. Will the market re-think this important development?
- A strong NFP: On the dollar side of the equation, we will get another reminder that the Fed is on course to hike in less than two weeks while the ECB, despite the disappointment, actually cut rates yesterday. See how to trade the NFP with EUR/USD. On one hand, low expectations open the door for a positive surprise. On the other hand, Yellen has already given us the hints that a December move is coming.
Here is a reminder of the extraordinary rally in EUR/USD, something you don’t see every day:
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