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Dovish Draghi Unlikely To Help EUR/CHF

Published 11/06/2014, 10:36 AM

Surprising no one, the ECB chose to leave its main interest rate unchanged in its November policy meeting, but the fireworks really started when ECB President Draghi took the stage for his press conference. Amidst rumors of discord within the ECB, Mario Draghi struck a firm dovish tone. In particular, two statements from his prepared remarks stood out:

1) “[The ECB’s] balance sheet is expected to move towards the dimensions it had at the beginning of 2012”

Interestingly, statements like these, which create a clear expectation among traders, are exactly the sort of comments that led to the rumored conflict with other ECB members. Beyond showing a clear willingness to inject more liquidity into the economy, these words also show that Draghi is sticking by his guns, despite pushback from other ECB members.

2) “ECB officials are unanimous on more stimulus if needed”

This comment also suggests that the reports of conflict within the ECB were overblown (or Draghi has managed to quash them, at any rate). With news that the ECB’s ABS buying program will begin “soon” and last at least two years, the ECB remains in full stimulus mode and willing to expand its nonconventional monetary policy measures if needed later this year.

Technical View: EUR/CHF

Not surprisingly, traders have aggressively sold euros on the back of Draghi’s dovish declarations, with EUR/USD falling to a new yearly low around 1.2400 as we go to press. Meanwhile, the normally stoic EUR/CHF also dropped to a new yearly low earlier today, and is getting perilously close to the SNB’s floor at 1.20. Looking to the chart, EUR/CHF has bounced modestly today after hitting its lowest level since 2012 at 1.2030 earlier today.

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Notwithstanding today’s bounce, the pair has been putting in lower lows and lower highs for months, and with Draghi ramping up his dovish rhetoric, EUR/CHF may struggle to bounce meaningfully for the rest of the year. As it stands, the pair remains well below its bearish trend line and 100-day moving average, while the MACD indicator is also trending lower below its signal line and the “0” level, showing strongly bearish momentum.

While we could see a modest bounce from here, the bearish fundamental and technical headwinds could quickly cap any near-term rallies, and an eventual test of the 1.20 floor is possible later this year, especially if the ECB is forced to resort to more aggressive easing measures.

EUR/CHF

Source: FOREX.com

For more intraday analysis and market updates, follow us on twitter (@MWellerFX and @FOREXcom).

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