EURUSD bounces from 2-year low as Draghi delivers less dovish message

Summary:

• Draghi: “Outlook is getting worse and worse”

• Initial market moves reverse

• EURUSD bounces from 2-year low; Dax falls

There’s been a see-saw market reaction to the latest policy announcement from the ECB with the initial moves reversing as President Draghi conducted his press conference. There was some expectation that the bank would cut the overnight deposit rate, but the Governing Council have seemingly decided to bide their time with all interest rates kept unchanged. The decision was accompanied by a short statement that hinted at the resumption of Quantitative Easing and this caused an initial drop in bond yields and the Euro while stocks rallied. In fact the EURUSD fell to its lowest level in 2 years and was on the brink of trading below the $1.11 handle.

However, once President Draghi began his press conference these moves reversed. It’s not so much that the Italian said anything particularly hawkish but he did seem a little cautious and the overall tone suggests the markets may have gotten a bit ahead of themselves in the initial reaction. 

EURUSD has bounced by around 70 pips since Draghi began speaking with the market reacting positively after earlier hitting its lowest level in over 2 years at 1.1100. Source: xStation 

The EURUSD is forming a potential hammer on D1 after just dipping below the recent lows to trade at the lowest level since May 2017. Source: xStation 

Selected comments from Draghi are as follows:

• Outlook is getting worse and worse

• Balance of risks is on the downside 

• No discussion about cutting rates today

• Want to see next round of projections before taking action 

In the normal course of events this could be considered as dovish but given the backdrop of expectations going into the event it looks like it may have come up a little short. Markets were pricing in a circa 40% chance of a rate cut today and the fact that this didn’t happen as well as no concrete promises that it will occur next time out have left the markets a little underwhelmed.

The price action in the German Dax has been pretty ugly in response with the current H4 candle that is yet to close suggesting a pretty strong rejection. The region around 12440 could be seen as key support going forward. Source: xStation