Draghi Comments Fuel Euro Sell-off

Fundamentally,U.S.fiscal cliff talk took a backseat to comments from European Central Bank President Mario Draghi on Thursday. In his press conference following the ECB’s decision to keep its benchmark rate unchanged, Draghi said the policy-setting committee had discussed in detail the possibility of lowering interest rates. This revelation rattled investors who used it as an excuse to liquidate long positions in the Euro.

Traders pared positions because his comments suggest that there may be enough support for an interest rate cut at the next meeting. This assessment comes on the heels of the ECB’s downbeat outlook for the Euro Zone economy for early 2013.

Thursday’s hard sell-off and today’s continuation indicates that investors are in the “sell first, ask questions later” mode. While most of the pressure is coming from the Draghi comments, some believe that traders are already beginning end-of-the-year position squaring. Combining the lingering fiscal cliff issue and the possibility of a rate cut in early 2013 may produce enough uncertainty to trigger a sideways trade until the end of the year. It seems the only factor that could drive the Euro higher is the U.S. Dollar which could collapse even further if the Whitehouse allows the fiscal cliff to occur as some are speculating.