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EUR down 0.9% after Draghi’s speech - Scotiabank

FXStreet (Barcelona) - Camilla Sutton, CFA, CMT, Chief FX Strategist at Scotiabank notes that Draghi’s comments on raising inflation and inflation expectations as fast as possible fuelled the dive in EUR as it fell towards 1.24 levels.

Key Quotes

"The reaction from markets has included an almost 1% drop in EUR and downward pressure on yields (including the Italian 10‐year yield falling to a fresh record low). The shift is currency negative, but might be mitigated by inflows into the European bond market preparing to take advantage of further yield suppression."

"President Draghi’s words have proven powerful in the past. On July 26, 2012 when the EUR had collapsed lower and was trading at 1.22, President Draghi said that the ECB was “ready to do whatever it takes” to preserve the EUR and “believe me, it will be enough”. This was the catalyst for a 9% EUR rally over the following two months. “

“Then on May 8, 2014 when the EUR was flirting with 1.40, even as the fundamentals had deteriorated, President Draghi pre‐committed to June action, opening the door to the subsequent 11% drop in EUR."

"EURUSD short‐term technicals: mixed—however today’s large and aggressive downside move opens up a test to the recent low of 1.2358, a break below here opens up a test to 1.2300, which we expect to eventually fall sustainably towards."

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