A second round of euro buying following the relaxed message from Draghi, accompanied with another round of USD selling following the weak data sends EUR/USD shooting up to 1.1335, a resistance level seen in the past. Update: resistance is broken and the pair already surges to 1.1365.
This came just after we have seen a dip in the pair, but that didn’t last too long. For a while, it seemed that the pair was capped at 1.1290, which was also resistance.
Monetary policy divergence, which should keep the pair depressed even towards parity, is not working yet.
The euro is also moving in tandem with German bunds. Draghi didn’t sign up to the idea of front loading QE before the summer: without intense bond buying, bonds sold off. And when bonds sell off, so do the euro shorts that hedge them. This is part of the explanation of what is going on now.
The other side is the US: while the data has improved and we are not seeing only disappointments, the theory of a “spring bounce” is still questionable.
If we get a break of 1.1335, the road is more or less open to the previous highs of 1.1450.
A lot depends on tomorrow’s big event: the US Non-Farm Payrolls.
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