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The initial market reaction to Draghi’s verbal shots was certainly powerful: EUR/USD lost over 200 pips and also uptrend support is history.

What’s next? There’s a good chance that more is coming, according to BTMU:

Here is their view, courtesy of eFXnews:

The euro has declined sharply following today’s ECB monetary policy meeting driven by the strong signal from the ECB that it will soon ease monetary policy further which is likely to be delivered as early as in December, syas  Bank of Tokyo Mitsubishi

The ECB delivered the most dovish policy signal possible while leaving its monetary stance unchanged at today’s meeting.

The euro is now likely to remain under downward pressure heading into the ECB’s next policy meeting on the 3rd December as the market increasingly discounts further policy easing in advance,” BTMU projects.

Today’s ECB policy announcements support our forecast for EUR/USD to decline to 1.0900 by year end. The unexpected announcement that the deposit rate could be lowered deeper into negative territory also increases downside risks to our forecast as it could prompt a sharper euro sell off by allowing yield spreads to widen further against the euro.

The much more dovish policy stance from the ECB is helping to offset recent upside risks for EUR/USD from dampened Fed rate hike expectations. If the Fed decides against raising rates in December it would place more pressure on the ECB to ease policy more aggressively to weaken the euro.

Alternatively the worst outcome for the euro in the near-term would be if the ECB eased policy more aggressively by lowering the deposit rate and expanding QE just before a decision by the Fed to raise rates for the first time in December,” BTMU argues.

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