EUR/USD Daily Fundamental Forecast – December 09, 2016

The Euro got thrashed yesterday after the ECB press conference where Draghi basically announced the extension of the QE program till the end of 2017 at the minimum and he also said that the ECB would work closely with the markets till atleast 2018. The QE program was supposed to end by March 2018 and the markets were looking for an announcement regarding the tapering of the program but what it got instead was an extension and this was clearly not liked by the investors and traders and they pushed the euro down as they believed that this measure would further weaken the euro.

We had mentioned in our forecasts yesterday that Draghi does have the habit of not being either too bullish or too bearish and has the habit of mixing both in equal measure and leave it to the markets to sort it out themselves. Thats what he did yesterday as well as a careful analysis of the announcement would tell us that what was announced was just a different form of what was expected. Most of the experts did expect a extended tapering of the QE program rather than an abrupt stop but the tone of the statement made it look as if the QE program was being doubled or so though the actual statement said that the purchases would be for 540 billion euros instead of the expect 480 billion euros.

In any case, this announcement initially caused the euro to spike to 1.0870 region but then it was pushed back all the way down to its support region at 1.0600 where it sits as of this writing. Expect some more bearishness today as the markets continue their response to this announcement but it has to be noted that we are back to the strong support region of 1.0500-0600 with the Fed meeting looming ahead next week. Contra traders can hope for a sell the rumor-buy the fact kind of move after the Fed meeting but since it is all news-based, nothing can be assumed. We will wait for a clear break of the 1.0500 region before we become bearish on the EURUSD pair (till parity), else we will continue to look for longs on any move towards 1.0500-0550.