Euro Dives as ECB Cuts Rates, Expands QE

[thenews]

The European Central Bank (ECB) cut the deposit rate further into negative territory, from -0.3% to -0.4%, while the main refinancing rate was surprisingly cut as well from 0.05% to 0.00% and the marginal lending facility was lowered by 5 basis points to 0.25%.

Moreover, the QE program was expanded by €20 billion to €80 billion monthly and the ECB announced four new targeted Long Term Refinancing Operations with a four year maturity. Borrowing conditions in these operations can be as low as the interest rate on the deposit facility.

The surprising move sent the euro sharply lower and it was crashing, with the EUR/USD pair down around 150 pips to trade at fresh daily lows around $1.0850.

More volatility could come shortly, as Mario Draghi may announce further stimulus at his presser.

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[thenews]

Draghi throws the kitchen sink at deflation and gets rewarded with a 300 pip rally in the euro Who'd be a central banker eh?

There's two ways to look at this. One, is the new way, where easing means a lower currency. The other is an old way long forgotten, where actions are taken for the positive intentions they are supposed to make.

Today's headlines were the type the market was waiting for in December. They punished Draghi when he failed to deliver. This time he's delivered but the market is punishing him once again, why?

There's probably a huge element of pre-ECB pricing in unwinding but more importantly, the ECB has shown it is willing to do whatever it takes not to let the Eurozone fall into deflation. Their actions are positive in that respect. If they're right, the end result is that their policies work and Europe is fixed. In the meantime their actions can be seen as positive and that overrides the actual affect on the currency.

For me, I'm thinking that the downside is going to be the harder work from here. As I said earlier, if we can't stay down on that lot from the ECB there's only one other way to go. The FOMC is the next big risk event and we already know that the euro has bounced back from dollar strength on that before.

The euro still has a lot of thinking to do so don't be too quick to pick a side just yet. Let the charts and big levels make the decisions for you. Go with the holds or go with the breaks. Whatever I, Adam, Greg, Mike or Eamonn say about this, the price action will always have the final say. Pick your battles and trade wisely.