German HICP inflation was confirmed at 1.6% y/y in December, unchanged from the preliminary reading, which meant prices rose 1.7% y/y on average last year. This is still lower than what the ECB would like for the Eurozone as a whole, and only in February did the headline rate top the ECB’s 2% target. Justification then for Draghi who pushed through another QE extension with net asset purchases set to continue until September at least, but it seems the central bank is now at least eying a change in the guidance and a firm commitment to an end date for QE, although recent market reactions to the hint of a change in guidance will back those arguing for caution with regard to the tweaks.
Meanwhile, the actual driver of the EUR today, was German politics. The euro dropped sharply on political concerns in Germany, with some SPD factions reportedly uncertain, or in outright rejection, of proposals to form a grand coalition. This has rattled EURUSD and euro crosses, which have been aggressively bid in recent sessions. EURUSD dove by about 60 pips in making a low of 1.2215, which as subsequent rebound above 1.2250 meeting fresh selling that sent the pair back under 1.2225.
However, this still does not indicate a bearish movement, since in the 30-Minute chart, the pair seems retraced fully. It is currently traded southwards, closing however for 4 consecutive candles above 1.2235, while it keeps moving above the 50-period EMA in the hourly chart ( immediate support level, at 1.2200). The recovery from the temporary weakness seen an hour ago, along with the fact that it return back within the lower Bollinger Bands pattern, suggest that bulls are still in control.
Therefore on the closing of the 30-Minute candle at 9:30, i decided to take a Long entry at 1.2246, with Support below the lowest of the day and at the round level,at 1.2200. Hourly Targets are at the 20-period MA, at 1.2265 and at the recent swing high, at 1.2280. Meanwhile, intra-day momentum indicators, are quite mixed, with MACD and RSI neutral and Stochastic sloping positively but still at the neutral level. The Daily momentum indicators remain positive, with RSI and Stochastics at 70 and 80 respectively, suggesting further upwards momentum.
Therefore any down-move today, could be consider as a possible buying opportunity, with USD remaining the weak currency so far.
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