EUR/USD Daily Fundamental Forecast – October 21, 2016

EURUSD finally had some volatility yesterday though it is a matter of conjecture on whether it was in the way that the traders preferred. The pair traded in a consolidation mode for most of the day and found it very difficult to break 1.0980 and it kept ranging between 1.0950 and 1.0980. The market awaited the ECB press conference and Draghi with bated breath and they arrived during the evening and close to the US session. The market was waiting for Draghi to say something about the tapering of the QE and as the pair was near some strong support, the bulls were ready to pounce on any opportunity to buy.

That opportunity came along when Draghi said that there was no discussion about the extension of QE and the market took it as a hint that the QE woyld be tapered pretty soon and the EURUSD pair popped. It broke through 1.0980 and also 1.1100 and went as far as 1.1140 as the Q&A began and then things began to unravel. There was no clear indication on when the QE would be tapered though the general agreement was that it indeed would be tapered and that the QE would not be stopped suddenly and would only be tapered slowly. This did not sound convincing to the markets and the markets generally do not like any uncertainty and the pair came crashing back through 1.1100 and through 1.0980 and ultimately it broke through 1.0950 on low liquidity and the lack of certainty on the QE. It has now entered the crucial support region between 1.0900 and 1.0950 and the pair is under severe pressure as the overall USD buying in the market has added its bit in putting the pair under pressure. The bulls will be keeping their fingers crossed hoping that the region holds.

Looking ahead to today, we do not have any major economic news scheduled to be released from the euro region and hence yesterdays headlines will continue to dominate the flows and price action today. How much of the QE tapering has been priced in is a matter of conjecture and we believe that there is still a bounce left in this pair and are looking for a bounce in this region back towards 1.1200 but the bears arent finished yet. The bears have smashed back the pair back down towards 1.0900 and it sits there as of this writing. Unless there is a recovery back through the day, we could be in for a large bearish phase in the euro.