EUR/USD – Euro Tumbling After ECB Announces €1 trillion QE

The euro has suffered sharp losses following the ECB’s announcement of a  €1 trillion QE package. The size of the program was larger than most analysts had expected, and the euro reacted with losses of about 250 points on Thursday. EUR/USD has shed close to 100 points on Friday, as the pair trades in the mid-1.12 line in the European session. The euro has been in free-fall in January, losing close to 900 points to the US dollar. In Friday’s releases, German Manufacturing PMI missed the estimate, coming in at 51.0 points. The French Manufacturing PMI contracted, with a reading of 49.5 points. In the US, today’s highlight is Existing Home Sales. The markets are expecting a jump in the December report, with an estimate of 5.08 million.

Another week, another bombshell for the hapless euro. The common currency took it on the chin last week, following the SNB’s unexpected move to abandon its cap of 1.20 for EUR/CHF. The move stunned the markets and saw the euro drop sharply against the Swiss franc and the US dollar. The markets had expected the ECB to pull the QE  trigger on Thursday, but Mario Draghi has often underwhelmed in his monetary moves, so a QE package worth €1 trillion sent the euro reeling yet again. The QE scheme will see the ECB purchase €60 billion each month, commencing in March and scheduled to last until late 2016. The ECB has been under increasing pressure to combat deflation in the Eurozone, as underscored by a December inflation reading of -0.2%. In remarks on Thursday, Draghi acknowledged that ECB efforts to fight deflation had been insufficient. Thursday’s dramatic move demonstrates a strong determination by the ECB to “take the bull by its horns” in the battle to bolster inflation and kick-start the ailing Eurozone economy.

Overshadowed by the dramatic ECB statement is the Greek election on Sunday. The left-wing Syriza party, which has promised to tear up Greece’s bailout agreement, leads in the polls. Greece’s economy has improved and GDP posted a respectable gain of 2.7% in 2014. However, strict austerity has taken a heavy toll, with wages falling and unemployment hovering at about 26%. The election has turned into a referendum over the bailout and austerity measures, and a win by Syriza could strain Greece’s relationship with its creditors (the ECB, EC and IMF) and hurt the euro.

EUR/USD for Friday, January 23, 2015

EUR/USD January 23 at 10:40 GMT

EUR/USD 1.1241 H: 1.1374 L: 1.1221

EUR/USD Technical

• EUR/USD continues to lose ground on Friday. The pair broke below support at 1.1340 in the Asian session. The downward trend continues in European trade.
• 1.1154 is an immediate support level.
• 1.1340 has strengthened in resistance as the pair trades at lower levels.
• Current range: 1.1154 to 1.1340

Further levels in both directions:

• Below: 1.1154, 1.1066, 1.0906 and 1.0792
• Above: 1.1340, 1.1426, 1.1525 and 1.1634

OANDA’s Open Positions Ratio

EUR/USD ratio is almost unchanged on Friday, continuing the trend which has marked the ratio all week. This is not consistent with the pair’s movement, as the euro continues to post losses. The ratio currently has a majority of short positions, indicative of trader bias towards the euro continuing to lose ground.

EUR/USD Fundamentals

• 8:00 French Flash Manufacturing PMI. Estimate 48.1 points. Actual 49.5 points.
• 8:00 French Flash Services PMI. Estimate 50.9 points. Actual 49.5 points.
• 8:30 German Flash Manufacturing PMI. Estimate 51.8 points. Actual 51.0 points.
• 8:30 German Flash Services PMI. Estimate 52.6 points. Actual 52.7 points.
• 9:00 Eurozone Flash Services PMI. Estimate 51.0 points. Actual 51.0 points.
• 9:00 Eurozone Flash Services PMI. Estimate 52.1 points. Actual 52.3 points.
• 14:00 Belgian NBB Business Climate. Estimate -6.1 points.
• 14:45 US Flash Manufacturing PMI. Estimate 54.1 points.
• 15:00 US Existing Home Sales. Estimate 5.08M.
• 15:00 US CB Leading Index. Estimate 0.5%.

*Key releases are highlighted in bold

*All release times are GMT

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