Euro Keeps Falling On Mario Draghi's Comments, Bearish $XEU Technicals

The euro continues to fall because ECB president Mario Draghi keeps reiterating his dovish views on monetary policy to the public. For example, he recently told Europe 1 on September 23, 2014 that the "ECB will continue to have a very expansionary monetary policy for an extended period of time until we see the rate of inflation going close to 2%" and "we will do whatever it takes within our mandate to make sure it will happen." In addition, he mentioned that the ECB's accommodative policy is currently diverging with other countries' policies, which could explain the recent activity in the euro.

The euro's long-term downtrend line was also warning about downside risk in early August, so bearish technicals and fundamentals both played a part in the euro's recent plunge.

Mario Draghi's comments on the euro and monetary policy to Europe 1 on 9/23/2014 (emphasis mine):
"Monetary policy will stay accommodative for a long time and I can say that the Governing Council is unanimous in its commitment to use the available instruments within its mandate to bring inflation back to close but below 2%. Interest rates will stay at the present level for an extended period of time because they can’t go much lower than that."
"The ECB will continue to have a very expansionary monetary policy for an extended period of time until we see the rate of inflation going close to 2% and that’s something that should be counted upon. But, at the same time, as I said before, proper structural policies and fiscal policies have to be in place."
"And we’re certainly, as I said before, we’re certainly ready to use all the instruments within our mandate to make sure that…" (DV: we have liquidity)
"The euro is irreversible. The euro is irreversible and we will do whatever it takes within our mandate to make sure it will happen."
"Well, you know we never comment specifically on exchange rates. I’ve said many times that the exchange rate as such is not a policy target, but it’s very important for price stability and for growth. At the present time, the exchange rate movement reflects the different path of monetary policies in Europe versus the monetary policies in other important countries. Our monetary policy will stay accommodative through time for an extended period of time while other countries’ monetary policies may gradually acknowledge that recovery is taking place in their countries."
The euro's long-term downtrend line predicted the recent move perfectly! I think it could bounce soon based on momentum indicators, but it definitely looks like it could fall towards 1.20 or 1.17 over the long-term, which would test the 2005 and 2010 lows. Citi's Tom Fitzpatrick thinks the euro will fall to parity with the U.S. dollar, and Gary Shilling is bearish on the euro as well (Bloomberg video, radio).

Source: StockCharts.com

Source: StockCharts.com

Related article: Euro Shows Draghi Succeeding Where Loans Fall Short (Bloomberg)
Traders are showing confidence in Mario Draghi’s ability to weaken the euro and stave off deflation, even as the initial results of a key part of the European Central Bank president’s plan fell below estimates.

Draghi has signaled he wants to boost the central bank’s balance sheet to as much as 3 trillion euros ($3.8 trillion) of assets from 2 trillion euros, expanding the supply of euros in the process. Yet, when the ECB went to lend cash to banks under its first targeted longer-term refinancing operation, they borrowed just 82.6 billion euros.

Watch a live interactive chart of EUR/USD at my market center courtesy of TradingView.com.

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