General market theme
Everyone now understands why we have put so much value to the ECB meeting and the central bank’s initiatives on the back of it to support growth in the Euro area. The markets’ reaction after Mario Draghi announced the new measures that the ECB will take in order to stimulate growth was more than impressive and revealed how much traders anticipated these moves in order for them to act.
However we’re not too sure that Draghi accomplished his goal as instead of talking the euro down the single currency rallied to the upside. Market participants bought euros on the back of the meeting with the most likely scenario being the fact that they don’t believe that the announced measures will do much to affect the euro and drag it lower.
Price action highlights
Continuing from above, the euro dipped below the 1.0900 level initially but as investors digested the new steps that the ECB announced the currency rallied aggressively to the top and ended the day at 1.1200. As we explained above it looks like that investors were disappointed by the new round of easing measures and given that the ECB hinted that they’re done for now that drove traders to buy euros against the dollar. The reaction was nothing short of impressive so we better allow the euro to normalize today before assessing its outlook for the next couple of weeks.
The cable might have not been in the centre of attention yesterday but it couldn’t avoid at least some volatility on the back of the ECB meeting as the Euroarea is the biggest trade partner of the UK. The pound came under pressure initially attempting to make a run towards the 1.4100 area but by the end of the day the UK currency was trading around the 1.4300 level following its European counterparty higher. Still thought the cable remained within its broader trading range failing to break above the 1.4300 resistance so we need to be cautious on how to approach the pound starting next week.
Focus of the day
Today the economic calendar is virtually empty of anything important with the only noteworthy tier-2 event being the release of the UK Visible Trade Balance figures which is expected to get a reaction out of the pound but nothing too exciting. We anticipate traders to continue trading on the back of yesterday’s ECB announcement so we might not be done with volatility for this week yet.
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