Yesterday, EUR/USD rallied almost 400 pips from the session low of 1.0821 to 1.1216 following the ECB rate decisions, staff projections, and press conference. First the ECB monetary policy decisions were delivered and the euro reacted as expected and sold off strongly. ECB Chief Draghi cut all three key rates, with the big surprise being the cuts to the Main Refi and Marginal Lending Facility rates. The market priced in a 10bps cut to the Deposit Rate. In addition to the cuts, the QE program was expanded by €20B a month to total €80B a month. They also announced added investment grade corporate paper to the PSPP program and launched four new TLTRO of 4-year maturity.
Draghi exceeded market expectations and the euro acted accordingly and fell from the 1.0970 area all the way to the noted low of 1.0821. Once the press conference began and Draghi read his prepared remarks, the euro had no major reaction. Draghi reiterated that asset purchases will continue until March 2017 or beyond if needed.
The euro started reversing its losses once the staff projections came out which clearly showed cuts on GDP and CPI forecasts across the board. The knockout punch for euro sellers came when Draghi stated, “Do not anticipate any need to cut rates further, but new facts can change the situation.” That comment alone helped trigger every algo and HFT system to jump on this reversal. Draghi later stated that the ECB is not out of ammunition, but for now it appears they will wait to see how today’s easing measures will work out.
Price action on the EUR/USD daily chart shows that the bearish Gartley pattern from February 11th has been completed. The euro could be on the verge of a major move higher if price can take out 1.1376, which is point D of the noted reversal pattern. Currently price is strongly above all three key (200-, 100- and 50-day) SMAs. If the bullish move continues, major resistance will come from the psychological 1.15 handle.
If the bearish move returns and price has daily closes below the 1.10 level, we could see a further consolidation towards 1.0925.
The trade: Buy EUR/USD 1.1125 with a stop loss at 1.1025 and a take profit at 1.1325. The Risk/Reward Ratio is 1:3.