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EURUSD – Where to Now?
Well as many analysts have pointed out Mario Draghi did a masterful job, jawboning the currency lower as promised to extend QE to 2017 and buy an additional 540 Billion EUR of bonds versus 480 Billion eyed. In addition he noted that ECB stood ready – if need be – to buy bonds below the central bank’s deposit rate of -0.4%.
All of this news saw the EURUSD sell-off hard today dropping more that 280 points off the highs. But after all is said and done, the pair has managed to stabilize around the 1.0600 level and may find a bottom there. Despite Mr. Draghi’s dovish posture the pair remains well anchored around the 1.0500 level and the data from the region continues to show improvement in both growth and inflation.
The only way the EURUSD sees further liquidation is if the Fed next week paints a very hawkish picture for 2017, signaling that it may hike 3 to 4 times. That scenario appears unlikely as the forward guidance from Fed officials has actually been very restrained, indicating the most members are more than willing to wait and see for a quarter or more before hiking rates further. Therefore a dovish FOMC next week could fuel a move in EURUSD right back to the 1.0800 figure.