The latest measures announced by the ECB at its December monetary policy meeting were met with disappointment by investors expecting the ECB to deliver above and beyond the consensus call. Heavily bearish EUR expectations were built up over the last two months in anticipation of a rate reduction with accompanying QE extension and increase by the ECB. The ECB did indeed cut rates (in line with the expected 10bps) as well as extending QE (now set too run until at least March 2017) however the size of the QE program remains unchanged. The reaction to this outcome was a swift profit taking rally in EUR by those who had been heavily short into the meeting expecting a more Dovish outcome.
The BOJ have remained stubbornly optimistic regarding the domestic economy and have continued to refrain from further easing, a policy stance which can reasonably be expected to extend into the New Year. The outlook for the EUR in the medium term remains bearish and once the dust settles on this positioning clear out, we are likely to see a resumption in EUR downside.
- The correction higher in EURJPY has taken price into a test of the 50% retracement of the decline from August highs aligning with the 38.2% retracement from June highs. This area also encompasses bearish channel resistance with VWAP highlighting the current move is particularly stretched with price having pushed up into the outer standard deviation band.
- Sell at market with stops above 135 targeting a move down into initial support at 132.20 and beyond there back down into the November lows
- Update: Stops to breakeven – 18/12/2015
- Update: Exit trade at market (129.90) + 360 pips – 04/01/2016