Last Friday’s summit reaction proved yet another “kneejerk-and-done” for EURUSD, as we are back where we came from ahead of today’s ECB and key US data today and tomorrow. What next?
On Tuesday, I suggested that the EURUSD chart lately seemed to be all about “fading the latest big reaction” as every time we’ve seen a big event risk or headline, we get a large kneejerk reaction that subsequently fizzles into non-directional behaviour.
How appropriate, then, that as we head into today’s ECB meeting, that EURUSD is trading almost precisely where it was the day before the almost three-standard deviation rally last Friday on the non-solution proposed during the EU Summit (suggestive of a bit of a short-term speculative short over- positioning problem in Euros?).
Today we have another important event risk, the ECB and whether it cuts rates (majority now suggesting that we see a cut, the question being whether it is 50 or 25 bps – wouldn’t the former make the most sense- most are only looking for 25.). So how do we react – another kneejerk and fizzle or do we finally get something directional going to the downside after the weeks of indecision here? Also important are the ISM non-manufacturing data today after the ugly ISM manufacturing from earlier this week and the US employment report tomorrow, as well as the overall direction in risk appetite, which is virtually screaming for massive QE. Another influence in the coming few weeks is corporate earnings and guidance as earnings season gets under way.
Chart: EURUSD
A hold below 1.2500 would look bearish and the important follow-through is a close below 1.2300. Bulls need a move and hold above 1.2700
John J Hardy,
SAXO BANK