Well, apparently dead cats do bounce! The bloc currency has left everybody perplexed after yesterday's "needle-like" upside, breaking above the prevailing consolidation pattern around 1.3050 to climb more than two big figures to the boundaries of 1.3280. ECB President Mario Draghi surprised the FX community once more, this time confronting the expected dovish tone with a more straightforward thinking about his views regarding the future of the euro area in the present year.
… Bear toy back to the box?
Twisting a little bit the market axiom that says "you can't fight markets" for "you can't fight confidence," we can see what this move was really all about.
President M. Draghi directly agreed that the bloc is transiting difficult times, which more likely would extend into the present year, but - and is a big "but" - he also expects some sort of recovery, enough at least to eclipse the likelihood of another rate cut from the actual 0.75% in the near term. True, fundamentals in the eurozone as a whole and in the core members are either stalling or retreating… so does this matter? Apparently not. Yesterday's injection of confidence boosted the risk appetite in such a way that overwhelmed every bearish perspective or gloomy forecast, only leaving room now for bets on which will be the next resistance the EUR/USD would penetrate. A first glance we see 1.3308 en route towards the vicinity of 1.3380.
This new - and mandatory - bullish vision on the cross is also supported by declining borrowing costs in former troubled debt markets like Spain and Italy, putting increasing distance between the ECB's OMT program and a Spanish request for financial aid.
Risk-on mode is sharply on, and there's nothing reality can do.
Technically speaking, analyst Karen Jones at Commerzbank assessed "We will ideally see failure circa 1.33085 for a slide back to the 1.2970-1.3000 key support. This is the location of the 6-month uptrend, the 50% retracement of the move up from November and the 55 day ma;" while the Bullish Percentage Index, developed by the research team at FXstreet.com, jumped yesterday to indicate that 78.95% of euro-based pairs are now in bullish mode, according to point and figure patterns.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.