We’ve pointed out in the quick comment updates that there was no follow through buying in Euro despite the rebound attempt. That rebound was initially triggered by ECB President Mario Draghi’s introductory statement that talked about the “solid and broad-based expansion” despite weaker than expected data. However, there was a lot of cautious tones in the Q&A section of the press conference.
Draghi said the Governing Council didn’t even discuss monetary policy “per se” during the meeting. And that’s because more time is needed to assess whether the slowdown in Q1 was “temporary or permanent”. And Draghi also cautioned that understanding the factors behind the moderation in growth is “essential for informing our next decisions.”
That was indeed more cautious than being cautious, as ECB policy makers now look more uncertain than before about the outlook. It should be noted that there will be Q1 GDP data to be released next week on May 2. And by then, ECB and the market would have a clearer idea on how deep the moderation was. Then on May 3 there will be April CPI flash, which will show how well inflation is picking up again.
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Even more importantly, ECB’s June meeting on June 14 is less than two months away. It rather unsure whether Draghi and his colleagues could have enough assessment on the outlook. That is, barring some strong rebound in data, Draghi could maintain his usual cautious noncommittal tone and stance even after June meeting.
It seems like Euro traders have made up their mind after some thoughts and choose not to sit their long positions through all the uncertainties.
Technically, today’s sharp fall should have confirmed the rejection from key fibonacci level of 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516. A medium term top should be formed at 1.2555 already. The depth of the fall from there depends on the structure, impulsive or corrective. And that, in turn, will depend on incoming Q2 data. But in any case, for medium term, 38.2% retracement of 1.0339 to 1.2555 at 1.1708 is the minium downside target.