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After Draghi delivered dovishness, the euro was clearly on the back foot. What’s next?

Here is their view, courtesy of eFXnews:

EUR/USD – BEARISH BIAS – (1.0300-1.0850)

As we have highlighted, we do not expect the ECB announcements today to alter the growing expectations in the market that EUR/USD will continue to fall from here.

President Draghi did a good job today in emphasising that the slowdown in asset purchases does not imply a taper of QE as the program remain open-ended. The focus now will quickly shift to the key event next week – the FOMC meeting on 14th December. This must be the strongest held consensus going into an FOMC meeting of a rate hike being the outcome and that outcome is now fully priced. While a more hawkish than expected press conference would likely lift the dollar further, the Fed Funds futures market indicates two rate hikes are priced for 2017 as well – so Yellen would have to be particularly hawkish to really push the dollar notably stronger next week.

Still, the sharp reversal of EUR/USD today after the ECB decision and going into the week ahead when the Fed is set to hike, we have to assume a bearish bias for the week ahead.

Indeed, there is a chance we may see a breach of the March 2015 low of 1.0458, taking us to levels we haven’t seen since 2003.

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