Euro Rallies Despite ECB Rate Cut
Today’s Spotlight Market
Both large and small speculators have been adding to their net-short position in the Euro futures the past week according to the Commitment of Traders report. For the week ending May 27th , speculators added nearly 9,000 new net-short positions in the Euro futures, which now totaled over 43,500 contracts. Small speculators held the largest overall net-short position and are most likely the ones covering their short positions now that the ECB rate announcement is out. ?
Fundamentals
The European Central Bank (?ECB?) finally was drawn to action to help support the struggling economy in the Euro zone. During Thursday?s ECB policy meeting, ECB President Mario Draghi announced a 10-basis-point cut in the main lending rate to 0.15%, as well as a move to a negative interest rate of 0.10% for funds held by banks in their deposit facility in order to help spur lending by commercial banks.? In addition, President Draghi announced that measures are being taken to begin the ECB?s own version of ?Quantitative Easing,? with the purchases of asset-backed securities from banks as opposed to the purchase of sovereign debt of Euro zone nations.? The inflation rate is running well below the ECB target of 2%, with the latest data having Euro zone inflation falling to 0.5%, which is the lowest rate in nearly 5 years. It is the fear of possible deflation that is triggering the unprecedented stimulus moves by the ECB in order to revive the moribund economy.? Currency traders have been selling the Euro of late, with the EUR/USD declining over 400 pips since the recent highs were made back in early May. However, the Euro staged a moderate rally after the ECB announcement, as weak bears closed-out short positions to book profits, even though the announcement was viewed as generally bearish for the Euro in the near- to mid-term.?? ?
Technical Notes? -? View Today’s Chart
Looking at the daily continuation chart for the Euro futures, we notice what appears to be a reversal of the recent downtrend, as prices ?spiked? lower after the ECB interest rate announcement, but rallied higher to close the session. Prices continue to hover just below the 200-day moving average, but remain above the up-trend line drawn from the July 2013 lows. The 14-day RSI has rebounded from oversold levels and has turned upward, but is still reading a rather neutral to weak 41.75. Thursday?s low of 1.3502 is now the new support level for the June Euro futures, with resistance seen at 1.3773.
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