During today’s ECB Press Conference, President Mario Draghi was a bit more optimistic than market had expected, and as a result, EURUSD jumped over 100 pips and is now (11:00am EST) trading at the year-to-date highs of 1.3845; one question that comes to mind for us Forex traders, is that: Is the EURUSD sustainable at the current level and will it go to the 1.40?
Well, to answer that question, we have to first look at what’s being said today, and here are some of the highlights by Draghi today:
It’s obvious to see why the Euro gained after these comments today, but more importantly, today’s ECB Staff Projection also painted a rosy picture:
(EU) ECB UPDATES STAFF PROJECTIONS:
Again, with inflation back to the 1.7% by the end of 2016, based on current monetary policy (without negative deposit rates or cutting rates to 0.10%), it is agreeable that there is no immediate pressure to deflation, thus removes the possibility of future rate cuts, and in essence a boost for the EUR. When you combine that with the positive tone today, it’s no wonder why the EURUSD gained 100+ pips.
But before you leverage everything on the Euro, I like to suggest putting today’s report in perspective. Ultimately for the year of 2014, ECB is expecting about 1.0% GDP and 1.0% CPI, which is still represent quite a risk for the Euro, especially with what’s going on in Ukraine and the potential bailout number three for Greece and bailout number two for Cyprus. Euro Zone economic recovery is struggling, and it’s just uncertain to expect that EURUSD will be sustainable at the current level.
Furthermore, US Fed official Dudley stated that “…Fed and market thinking on a first rate hike in mid 2015 are aligned.” not only echoed market sentiment, but also provided another confirmation to Fed’s policy set forth by Bernanke during last December. To take this a step further, looking back again at the ECB Staff Projections, ECB might hike interest rate sometime in 2017, versus almost certain rate hikes by the Federal Reserve in 2015, or less than a year from now, where do you think EURUSD will be in 12 months?
In conclusion, I am inclined to take advantage of any EURUSD rally and sell into it. With tomorrow’s NFP likely to disappoint, perhaps the ideal timing would be a SELL on Monday the 10th.
Is EURUSD Sustainable At 1.40?
March 6, 2014 by Leave a Comment