Euro Plummets As Draghi Hints At Additional Stimulus Measures
Today’s Spotlight Market
The value of the Euro fell even more sharply against the so called ?commodity currencies? such as the Australian and Canadian Dollars following an announcement by the People?s Bank of China (PBOC) that it lowered the benchmark interest rate by 0.25% to 2.75%, as well as the one-year lending rate by 0.4% to 5.6% in attempt to shore up lenders as the number of bad loans soared by 10% in the 3rd quarter.
Fundamentals
Euro bears celebrated in the wee hours of the morning on Friday as European Central Bank (ECB) President Mario Draghi announced that the Bank was prepared to expand monetary stimulus in an attempt to stimulate the European economy as inflationary pressures slowed. In a speech to the European Banking Congress, ECB President Draghi make it clear that bank officials will take steps necessary to spark inflation, including expanding assets being purchased by the ECB to include sovereign government debt. The timing of the announcement could not be better as the Euro had been in a minor uptrend vs. the U.S. Dollar as word of an expansion of stimulus measures by the ECB send the Euro down over 1.3% vs. the greenback as short-term bullish traders rushed to the exits. The trend for the Euro now seems to mirror that of the Japanese Yen, where the nation?s Prime Minister Shinzo Abe is attempting to break the back of deflation that has plagued the Japanese economy for over two decades.
Technical Notes? -? View Today’s Chart
Looking at the daily continuation chart for the Euro futures, Friday?s plunge confirmed the formation of the most recent ?bear flag? technical formation. Despite the large percentage move, the market failed to test the yearly low of 1.2361 although this support level may be difficult to defend as momentum has once again turned in favor of bearish traders. There appears to be little in the way of major support for the Euro until the July 2012 lows near the 1.2050 price level. Momentum as measured by the 14-day RSI has weakened, but remains above oversold levels with a current reading of 37.90. Near-term resistance is seen at 1.2605, with major resistance found at 1.3005.
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