The European Central Bank held its policy meeting on Thursday, which was surrounded by a sea of expectations. It is hard to determine what exactly observers and traders were expecting, but the pressure on the ECB was to do “something”. Well, the bank did exactly the opposite – nothing, and currencies responded as if great deal of uncertainty was suddenly swept aside. The benchmark interest rate stayed at 0.75%, with no other change in financial policy. Mario Draghi managed to sound upbeat, talking about positive outlook for the Euro zone, with a recovery later in the year. Perhaps the most influential piece on news was the fact that the decision to leave rate unchanged was unanimous. Markets clearly interpreted it as “no cuts soon” and the Euro rallied strongly. It remains to be seen if this change in sentiment has a staying power, since couple of previous swings in the past few weeks did not. One possible way judge it is by watching the key resistance level on the EUR-USD daily chart. It is at 1.3300 and what happens there can decide the next major price swing in the Euro.
The upbeat press conference by the ECB chief Draghi, helped my trade in the EUR-CAD. This position had been going nowhere for several days, but received a boost today. As mentioned in the last post, I did not open new trades involving the Euro before the interest rate decision, but all existing trades were left until they concluded. In this case it took a while, but the EUR-CAD finally reached its objective at 1.3000 for a gain of 80 pips.
Another trade discussed on these pages was in the CAD-CHF, covered in the last post. Here I was looking for a breakout in either direction, whichever happened first. The price fell sharply, triggering a sell order at 0.9320. Because the selloff was rapid, I decided to get out at the same time as the EUR-CAD trade reached its target. While 43 pips in this example fell short of the original objective of about 70, it made sense to take it because it happened in a matter of hours rather than days. I can move on to other potential opportunities.
One likely candidate is the EUR-JPY. As a matter of fact, all of Yen pairs are on my watch list for short-term reversals. After huge rallies today, these instruments are likely to correct on Friday, perhaps as much as 50-80 pips or more, depending on which cross. The problem is that as of this writing, they do not show signs of reversal. However, since the volatility as so high, even 5M charts could deliver good and quick result once some topping pattern can be identified. I am watching all the crosses on 5M and 15M charts. I addition, all the USD pairs could produce a breakout situation after the London open, provided that suitably tight price ranges can be found.
Mike K.