Thursday, May 8, 2014

XEU Euro Daily Chart ECB Rate Decision and Press Conference Imminent

Draghi is on the big stage this morning. The euro continues higher now printing 1.3938. European manufacturers and exporters need a lower euro so they can become more competitive and help pull the continent out of its disinflationary and deflationary funk. The problem is that Draghi does not have much room to move lower with the rate and this would be a surprise if he did lower the benchmark rate today. Draghi's hands are tied since his mandate is to fight inflation only and he does not have the tools available that the Fed and BOJ have that enable these nations to rape their currency far more easily.

So Draghi provides lip service stating that he has plenty of tools and such available to talk the euro lower, and for a while that worked, but after the meeting last month no one is biting. The euro is up from 1.37 to over 1.39 since the last Draghi pep talk--the opposite of his intentions. Maybe he should stop talking. Obviously, traders are looking for a concrete action to provide a firm reason to stab the euro lower.

Price popped above the upper standard deviation band so a move back to the middle band, the 20-day MA, at 1.3848, is in play. The bands are tight and have already squeezed the euro higher. If Draghi is unconvincing about his attempt to talk down the euro this morning, then price can move higher to test the high above 1.395. If Draghi announces an easing program the euro will collapse and dollar will sky rocket. No action is expected so a sideways move for the euro with some upward buoyancy may occur.

EUO is an inverse ETF that would be an attractive play going forward. EUO is the mirror image of the euro chart above so it displays positive divergence instead of the negative divergence (red lines) above. The short green lines show near-term momo and long and strong behavior so a move above 1.395 would be expected but the longer term negative divergence, as well as neggie d on the weekly chart, will knock the euro lower going forward on a weekly and more intermediate-term basis. The question is from what level? Here, today, now, at 1.394, or above 1.395, or the red dot at 1.397, or the top trend line at near 1.400? Choose your poison. One trade possibility is entering EUO or other short euro instrument after Draghi speaks (if the euro continues higher) and then simply make one or two more adds to the short play if the euro continues higher over the next couple weeks. If Draghi succeeds and sends the euro lower today, it is best to wait a few days and see how any euro weakness plays out.

Overall, a weaker euro is anticipated for the weeks ahead due to the negative divergence setting up on the weekly chart. The weaker euro will send the dollar higher and commodities lower affecting the broad indexes. The ECB Rate Decision is 7:45 AM and the more important Draghi Press Conference begins at 8:30 AM when Jobless Claims are released in the States. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.

Note Added 8:02 AM on 5/9/14: The ECB rate decision is a push with no action taken. The euro immediately drifts higher to near 1.40. Then Draghi begins talking at the press conference and promises easing action at the next meeting 6/5/14 as long as the member forecasts are acceptable. The euro immediately collapses from near 1.40 to under 1.39. Overnight, the euro drops under 1.38. The euro is dropping, the dollar is popping, and the S&P futures are -4.

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