EUR/USD 1H Chart 8/2/2012 9;25AM EDT
Today’s highly anticipated ECB policy announcement and the subsequent press conference held by bank president Mario Draghi gave the market a lot of fuel for high volatility trading.
The EUR/USD declined yesterday after the FOMC put off QE3 and the market put back USD-strength. However, the market was not committed to the move ahead of today’s ECB meeting.
Reaction
Going into the ECB meeting, the market traded up slowly, accelerating higher immediately after the ECB announced policy. It basically held rates and did not provide any action. However, this rally found resistance at the next pivot, 1.24.
At 1.24, the market rejected the rally as Draghi took the stage, and the EUR/USD plunged about 225 pips to 1.2175 within the hour. The 1.2175 level is 61.8% retracement of last week’s rally from 1.2042 to 1.2389.
Draghi Walking Back:
The market feels that Draghi is doing the moon-walk on his statement last week in London that “the ECB will do everything in its mandate to preserve the euro”. Today he still emphasized that the governments need to lead. Also he reiterated that the statement clearly said “within its mandate”.
He made it sound like the media storm jumping on his statements were overplayed, but also maintained that the market acted logically based on his remarks. The EUR/USD market is also walking back last week’s rally.
At one point though, he did explain is statement that the euro is irreversible, saying “it would be pointless to short the euro”, somewhat a balancing statement.
Follow through? NFP
This hours price action took out this week’s high and low. The 1H chart also shows that the RSI remained below 60, showing that the bearish momentum from yesterday (8/1) is maintained.
Further extension of the current bearish swing exposes the 1.2116 (78.6% retracement) as well as a previous near-term consolidation support.
We still have the US Non-Farm Payroll risk-event tomorrow. The market should shift its focus to this release after Draghi finishes up. So expect some consolidation to follow.
Fan Yang CMT is a forex trader, analyst, educator and Chief Technical Strategist for FXTimes – provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.
Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. FXTimes will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analysis.
