Euro pops because headlines say the ECB may not ease again
Why is this news?
Draghi has already said that they felt that the minimal action they took in December was because they felt there was life in the Eurozone economy and there was no need to do more, right then
There were also "many members" who were sceptical about further easing then. I doubt they've changed their minds over Christmas
What we've just seen is another reason to think that we could be close to a bottom in the euro or at least that the tide is turning further. Europe isn't out of the woods yet but the ECB is moving into 'wait and see mode' and the economy is showing some signs of life
I'm now out of the EURGBP shorts that I've held for 18 months because one of the big risks to the trade was a turnaround in the Eurozone and/or sentiment. Much like my cable longs I exited in Dec, I don't want to see 18 months of long awaited profit evaporate. 0.7500 was always my reflection point and the second break through 0.7550 is my line in the sand gone
All through last year I said that after the Fed hikes the dollar would suffer and that one beneficiaries would be the euro. For all the distance it's fallen it always looks it could rip if given an inch. However, the longer term direction is very much still in the balance, and right now I'm not looking for reasons it might rip, but for reasons why it might not go down anymore. While the pop today is only a measly 70 pips, hardly enough to scare long held shorts, it's the reaction itself that's more important as it shows a willingness to buy quickly on such news, and that gives me a tiny insight into how the market feels
While I'm watching for those signs, I can't ignore what the price is doing and even though I still feel that the policy divergence between the UK and EU is a good trade, the strength of the price moving against my position tells me that it's time to take the money off the table and look to play the strategy another time
