Draghi Unmoved: Opportunities in EUR/USD and EUR/JPY?

July 22, 2016

Image: European Parliament Flikr (cc)

The European Central Bank overnight, kept interest rates on hold at zero as expected.

But with the whirlwind of uncertainty that surrounds a post-Brexit Eurozone including stubbornly low growth and a struggling Italian banking system, Draghi’s press conference was, as always a media gold mine, that kept markets hanging on his every word.

Speaking of Brexit, it’s looking like the ECB isn’t too perturbed by it:

“Euro area financial markets have weathered the spike in uncertainty and volatility with encouraging resilience.”

While Draghi continues to make it clear that they are willing and able to deal with any shocks that may arise as the UK continues to negotiate its full exit strategy, conditions are holding steady for now. A point that could be perceived as being very EUR positive.

Positivity that spurred Draghi on in speaking about the resilience that the EU economy has displayed recently, as well as the upbeat prospects they expect heading forward. Less QE? Well, he did hold short of giving away the bank’s plans for more stimulus, but spoke about possibly having to change the criteria for the type of bonds that they can buy… because essentially they are running out. Ha!

But what about the 360 billion Euros of bad loans bloating the balance sheets of Italian banks, and the prospect of more bailouts being needed if momentum starts to take hold now we’ve started sliding down the slippery slope?

“Some steps have been undertaken in Italy.”

The EU has implemented rules that mean it’s the shareholders and owners of bond debt that must take the initial hit if push comes to shove, rather than the taxpayer. What this will do to confidence in the system is still unknown and the worry is that it will still hit the everyday taxpayer at the end of the day when things fall apart anyway!

As I keep saying on this issue, watch this space!

EUR/USD Hourly:
160722_eurusd_hourly
Click on chart to see a larger view.

The intra-day chart shows the spike back up into a previous area of interest that’s reacted on both sides this week. With the press conference ultimately not providing anything new in terms of the ECB’s plans for the direction of monetary policy, price simply whipsawed within the range and basically start’s today’s trading session where it did yesterday.

EUR/USD Daily:
160722_eurusd_daily
Click on chart to see a larger view.

Zooming out to the daily chart and we have the channels that we’ve been watching, but nothing really jumps out as a quality level to manage risk around so I’m not jumping out of my skin to put a position on in this pair.

Nothing to see here folks!

Bonus Charts:
With nothing on the Major pair, I went looking for trading opportunity in the Euro, and EUR/JPY was the pair that pricked my interest.


Carrying on from the idea that the BOJ will disappoint, the rumblings started early during yesterday’s Asian session and by the time we hit London, quotes from Kuroda (whether correct or not) saying that Helicopter money was off the table had hit the newswires and the Yen pairs had taken a couple of hundred pip battering as a result.

EUR/JPY 4 Hour:
160722_eurjpy_4hour
Click on chart to see a larger view.

The Yen pairs were all sitting at pretty juicy resistance levels such as the one in the daily chart above.

EUR/JPY 15 Minute:
160722_eurjpy_15minute
Click on chart to see a larger view.

Now the rejection off the higher time frame level has come, we can look for some intra-day pullbacks into previous support that could now act as possible resistance to ride the train down.

Are you trading any EUR or JPY pairs? Share your setups by mentioning @VantageFX on Twitter!

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On the Calendar Friday:
GBP Manufacturing PMI
GBP Services PMI

CAD Core CPI m/m
CAD Core Retail Sales m/m

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Dane Williams – @VantageFX

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