Well yesterday was one for the history books. A day of massive moves in the Forex Markets. Largest one-day gain for EUR/JPY since 2008! (498 pips). After Mario Draghi kept interest rates on hold he warned of downside risk to the Eurozone and set up the start of his press conference in a dovish manner but their was no follow through with his Dovish tone or downside in any Euro pair. The Euro initially climbed to 1.2835 after the interest rates were kept unchanged but started selling as soon as he mentioned "downside risk", the market was hoping for some indication about the ECB taking action and although he left the door open, he was vague and emphasized there was little the ECB could do. The Market had been pricing in an upcoming rate cut all week and with no clear sign it sparked a spectacular turnaround in EUR/USD . From 1.2750, the pair shot to 1.2934. The last leg of the move come from a break of the 200-DMA at 1.2893.
Early in US Trading, USD/JPY took another leg higher adding another 100 pips to 96.41. Cable went along for the ride, jumping nearly 200 pips from the lows to 1.5232 from the 1.5045 lows.
Overall it was an intense day of trading with some gigantic moves in all the Yen crosses salted with major volatility in the Euro and Pound. If we had days like that more often we could sit on a beach in St Barts and do this all day!!
Looking at Equities, The Dax along with some of the other European bourses sold off heavily after Draghi left rates unchanged. If you remember on Tuesday the Dax rallied nearly 150 points on bad economic news and that move has been nearly paired now. To be honest I am nearly sure that the 7770 will be tested this morning. This is where the move began and generally when a market gets let down like this its back to where it came from. There is a trendline at 7855 which was broken yesterday and last Thursday and this will provide resistance.
Is it just us or have the European Equities started to cry out for easing? The European Markets are behaving exactly like the American stock Market did prior to QE3, rallying on bad news because of the likelihood of more or continued Quantitative Easing or more acomodating Monetary Policy. Yesterday the DAX, IBEX and the FTSE all fell hard when their respective central banks failed to deliver more liquidity support. We are very bearish on European stocks for this reason as we believe the ECB will definitely not deliver a cut at the May meeting and with only a chance of doing so at the June meeting. For this reason additional capital may flow out of European stocks and into the S&P 500.
This just proves the fact that every Stock Market is revolving around central bank policies and yesterday just re-instated the fact to not fight this fact but to just go with the flow.
Yesterdays reversal candle on the Daily chart of the EURUSD was extremely strong. A huge Dragon Fly doji, with 200 points in the difference between the lows and highs. It technically looks extremely bullish and from a fundamental perspective with the Japanese burning their currency and the Americans doing likewise it would not take much good news for the Euro to be squeezed much higher against the Dollar. Some medium term upside targets could be around the 1.33- 1.34 area. The break of the 200 Day moving Average will allow traders to start buying dips as opposed to selling rallies. However a break below the 200 DMA at 1.2893 would look bearish again showing the pair hasn't the ability to bounce. It will be tricky for the next few days until we get some direction. Hopefully the American Non Farm Payroll's data at 13 30 GMT today will give the Dollar and thus the Euro some direction near term. A poor number which is likely considering this weeks soft Data may cause another Euro squeeze with Funds and traders Dollars and buying back Euro short positions.
Good luck today and have a great weekend.
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