EUR/USD Jumps to High Range On ECB Italian Job

The new forex trading  week started with a storm: EUR/USD jumped above one range and traded higher: the ECB finally expressed willingness to act.

An emergency meeting held before the Sydney / Wellington open, concluded in a commitment to buy Italian bonds and attempt to sooth markets after the Euro crisis deepened and S&P downgraded the US for the first time in history. Will it really act seriously? This question remains open. But at least for now, the euro is leaping.

EUR/USD now trades at 1.4380, just above the 1.4375 line. It closed on Friday at 1.4276, just under the 1.4282 line. When traders in the South Pacific started the new week, the pair leaped as far as 1.4435, just under the 1.4450 resistance line. While the euro weakened since then, it still holds a big gap from Friday.

Update, Sunday, 22:15 GMT: EUR/USD lost support at 1.4375 and is now at 1.4340. Perhaps traders aren’t convinced with the determination o the ECB. In the meantime, the gap is kept. Tokyo will open at 00:00 GMT. More liquidity will provide better answers.

Update: Sunday, 23:04 GMT: Gap temporarily closed – EUR/USD touched base at 1.4286,before jumping back above 1.43. We are still in illiquid  conditions, before Tokyo opens.

This move was expected: Italy’s prime minister, Silvio Berlusconi, already surrendered to the ECB on Friday, paving the way for the statement by the ECB, which finally acknowledged that it has the tools to do something in these extreme conditions (emphasis mine):

 It is on the basis of the above assessments that the ECB will actively implement its Securities Markets Programme. This programme has been designed to help restoring a better transmission of our monetary policy decisions – taking account of dysfunctional market segments – and therefore to ensure price stability in the euro area.

It is still to be seen how serious the ECB is. In the past, its interventions in the markets were limited: too little and too late. Bond markets open in the European morning, and we’ll get answers by then.

Further reading:

• How will currencies react to the US downgrade? – The assessment regarding the euro was right, at least for now.
• Euro to dollar forecast: for more events, technical analysis and commentary on everything related to EUR/USD.
• Can Jean-Claude Trichet turn into Jean-Claude Van Damme? – Why Europe needs a QE program.