EURUSD Rises and Drops Steeply As ECB Holds Rates

Summary:
• The EURUSD rose sharply and then dropped steeply in choppy price action as the ECB holds rates but fails to deliver on sweeping stimulus.

The EURUSD has extended losses for the day after the European Central Bank (ECB) left interest rates unchanged. The holding action of the ECB is the first among the five major central banks that have taken action on the interest rate this month in the light of the coronavirus crisis. Instead, the ECB has opted to boost its Targeted Long-Term Refinancing Operations (TLTROs) by €120 billion as a temporary measure to provide supporting liquidity to the financial system of the Eurozone. This measure is to last until the end of 2020 at the first instance. 

In her remarks at the ECB press conference which kicked off at 1.30 pm GMT, ECB President Christine Lagarde has admitted that the “Coronavirus is a major shock”, and that the “virus will slow down production, reduce demand.”

She also believes that the coronavirus will have a “significant impact on activity”, even if such an impact were to be a temporary one. She affirms that timely and targeted action is needed by governments and policy institutions to mitigate the economic impact of the coronavirus pandemic, and that fiscal responses needed must be ambitious. She has reaffirmed the ECB’s commitment to stand ready to adjust “all of its instruments”, even as the “Latest indicators point to a considerable worsening of the economic outlook.”

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Technical Outlook for EURUSD

The EURUSD started the day lower, breaking the bullish moves of the last week and a half. However, the ECB’s rate decision prompted a knee-jerk move to the upside, which has mostly corrected itself. 

The EURUSD continues to trade in a choppy mode, but the likelihood of a selloff persists as the ECB did not deliver the broad-based bombs that the markets were expecting. 

• The interest rates remain unchanged. 
• The QE easing programs of September 2019 which mandates asset purchases of €20bn every month will continue as planned, with no changes to forward guidance. 

The outlook for the pair is therefore bearish; the pair may aim for the 1.11667 support level, formed by the double top of October/November 2019 and the highs of 17 Dec 2019 and 16 Jan 2020. Below this level, the lows of March 3 and 4 at 1.11023 may become relevant. Continued downside brings the Oct/Nov 2019 double top neckline at 1.10630 into focus. 

On the flip side, any recovery from present levels targets 1.12540, with 1.12882 lurking overhead.