EUR/USD Weakness Resuming as ECB Signals Next Move

  1. The European Central Bank surprised at their meeting on Thursday, and now market participants are discounting the next wave easing to commence in December. Two EUR-crosses stood out in particular this week, given their reaction to the ECB and their respective ensuing significant responses: EUR/USD declined sharply by -3.00% to $1.1011, breaking its uptrend from the March, April, and July lows in the process (perhaps the beginning of a longer-term bear flag); and EUR/AUD dropped by -2.31% to A$1.5258 (losing its uptrend from the April, May, and June lows). 
  2. If a deposit rate cut is coming in December, the market may have already effectively priced it in: EUR/USD dropped from near $1.1350 ahead of the meeting to a closing low of $1.1011 this week. It’s the second takeaway from the ECB meeting that will be the potential fuel for further Euro losses going forward: the ECB’s apparent lack of faith in a continued rebound in growth and inflation readings. Citing concerns over growth in emerging markets and stagnant energy prices (the latest Euro-Zone CPI data showed headline inflation fell negative to -0.1% y/y while core inflation was only +0.9% y/y), the ECB has found the prospect of keeping policy steady unpalatable. Changes to the QE program seem likely, perhaps its size, duration, or run rate.