Euro breaks 1.30 on ECB hint at rate cuts, then bounces
For those who may not know or have just joined us on the US session, the market was hit early in the European session on comments from ECB member Klaas Knot and ECB VP Vitor Constancio.
The market started to move lower on poor German services PMI, which came in 2.8 points below expectation, but then comments hit the wires about the ECB rate action .
As the comments unfolded we dropped through 1.3000 and into bids and supporting tech levels in the 1.2970/75 area. What was surprising was that these comments had previously been out in the press over the weekend and Monday. Upon further investigation a new news feed added to broker screens seemed to be the cause. If it was a stunt then it worked.
As you can see from H4 chart we stopped exactly on the 200 ma and 50 fib level at 1.2972 and the market had no impetus to take us lower.
Further weak eurozone PMI figures kept the euro offered for most of the session with attempts at the 1.3000 level rebuffed. The fact that the moves held so long is also surprising.
Noises are starting to emanate from the eurozone that austerity may be stifling growth rather then giving it a base to grow. Tallied with a steady stream of news from Japan that Japanese lifers may start to increase foreign holdings, and Italy and Spanish 10 year bond yields falling to 18 month lows, the case for a higher euro was more than plausible.
As the session has gone on the euro has recovered and managed to get back above 1.30 but progress is slow and one wonders if there is now a battle between rate cut hopes and the possibility of the eurozone finally grabbing the growth bull by the horns.
At time of writing the euro is posting session highs at 1.3020 which was former support on the way down and is currently offering resistance. This should be fairly light if the market wishes to take it on.
