On Thursday the outcome of the ECB convening were three rates left at their former levels. The key refinancing rate remained at 0.00%, the rate for deposits was left at 0.40% and the ECB credit rate was left at 0.25%. Their asset purchasing program remained at 80 billion euros per month.
After the ECB’s decisions were made public, the euro/dollar rose up a little to 1.1350. At the beginning of the press conference it rose further to 1.1397. Draghi spoke about the improving financial conditions and credit situation in the region. But this is where the buck stopped. The tone of his speech became darker. The head of the central bank expressed worries about the UK leaving the EU and the return of deflation with regards to consumer prices. He said that the rates will remain low for an extended period of time even after QE has ended.
Following the press conference, the euro/dollar rate fell 129 points to 1.1268.
On the daily time frame a pinbar has formed (see graph below). After such candles, the market often bounces by 61.8% and even updates the maximum. So, taking into account that today is Friday, I would be careful with my sales at the current levels. In the first half of the day I expect the euro to bounce to 1.1334/40. Close I expect to see around the balance line region.
Day’s News (EET):
10:00 – 11:00, business activity indices in industry and services for Germany, France and the Eurozone in April;
15:30, Canadian March CPI, retail sales in February;
16:45, US preliminary industrial business activity data for April;
20:05, US extraction rig data from Baker Hughes.
As I said above, a pinbar has formed on the daily. Mario Draghi is always a game changer. The buyers bought tickets thinking they were heading north, but Draghi sent them packing south. Now the price is set to float slowly upwards, and those that bought euros at the maximums will try to get out of long positions at around 1.1335 to 1.1349 (fibo 50.0-61.8% from 1.1268 to 1.1397).
Perhaps a W-shaped pattern will form; a return to 1.1387 and a fall to 1.1320. I just don’t see the fundamental factors for a revival of the euro to 1.1387 this Friday. There is no news which could shake the market up, as happened yesterday.