Daily Market Analysis: 9 December 2016
by Christala Parmaxi, CFTe
ECB Policy Meeting
It was widely expected that the ECB would extend the bond-purchasing program by 6 months, instead it was extended by 9 months until December 2017 “and beyond if necessary” with a reduction of EUR20 billion for the extension period of April to December 2017. Thus, the ECB will keep the current QE steady, buying EUR80 Billion of bonds every month until March 2017 and then the ECB will purchase EUR60 billion of bonds from April 2017 until December 2017. Of course the rates remained steady at -0.4%, 0% and 0.25% for deposit facility rate, interest rate and marginal lending facility rate respectively, which didn’t catch us by surprise.
At the time of the announcement, the EURUSD recorded a session high at 1.087 which had proven to be a spike since it managed to fall back to the 3-day low level of 1.059 during the day. Investors misrepresented the announcement of the extension of the QE since they thought that the “tapering” of the program is near due to the reduction of the purchases for the 3 quarters of 2017. However, during his press conference, President Mario Draghi made it clear that no “tapering” of the program was discussed or announced. Mario Draghi also paid attention to the likelihood of more stimulus if “the outlook becomes less favorable or if financial conditions become inconsistent with further progress towards a sustained adjustment of the path of inflation”; which made his speech quite dovish. The biggest winner of the day was the Canadian Dollar which keeps on rising after the OPEC deal and especially EURCAD which was boosted 1.6% higher due to ECB announcement and oil rising prices.
US Dollar Daily Performance
The US Dollar also benefitted from the ECB decision since it closed the day higher against most of the majors and especially against EURUSD and USDCHF. The only pair standing strong against the US Dollar yesterday was the Loonie which is rising since the OPEC deal day. The next big event that will determine greenback’s direction is the Fed policy meeting on December 14th where we widely expect to increase the rates by 25 points but we would be closely watch the plans of the Fed for the next year now that the data have changed.
The main currency’s strength was defeated yesterday since it fell sharply from 1.0872 to 1.0588 breaking the triple SMAs to the downside. The pair is consolidating between 1.058 and 1.063 while the Bollinger’s band have been narrowed waiting for the next expansion. On the one hand, EURUSD fell by approximately 280 pips within some hours, on the other hand the pair did not manage to create a new low level and it actually created a higher low than the previous one. This can be clearly seen on the 4-hours chart where the reversal of the sharp downtrend has not been canceled yet. Moreover, MACD and RSI are slopping upwards and ADX still indicates a healthy positive direction with the positive Directional Index laying above the negative DI. We would expect the pair to correct up to at least SMA200 which coincides with the resistance level of 1.066. On the flipside, if the pair crosses the support of 1.057 to the downside then we would expect further bearish movement down to 1.054.
The Cable confirmed the short-term downtrend with a new session low at 1.255 and a cross below SMA200. We would expect the pair to test the support of 1.255 again today and signal further downside momentum upon penetration of it. Meanwhile, ADX indicates no clear directional movement while RSI is slopping downwards and MACD is on bearish levels below its equilibrium line.
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