EUR Squeezed Post QE Announcement

 | Jan 23, 2015 04:55AM ET

h2 Market Brief

The ECB unveiled the much expected QE program yesterday. In addition to its private bond purchases introduced in the last quarter of 2014, the ECB will start buying 60 billion euros government debt and European institutional debt starting from March 2015 to September 2016. The total amount of the program sums up to 1.1 trillion euros, which exceeds the already aggressive market expectations (750 billion to 1 trillion euros anticipated with NCBs being part of the program). The NCBs will hold 80% of domestic bonds, while the 20% of risk will be shared. “I am surprised the risk sharing issue has become the most important aspect of the effectiveness of our monetary policy. » said Draghi as such framework brought a level of fragmentation in the heart of the Euro-zone’s single monetary system. The euro sold aggressively after the announcement, taking out the 2005 low (1.1460). Asian traders pulled EUR/USD down to 1.1315 for the first time since September 2003. The heavy unwind deepened the oversold conditions (RSI at 19.5%).The sentiment is comfortably negative. We believe short-covering is underway yet decent option barriers should limit the upside attempts pre-weekend. Large put expiries are seen at 1.1450, 1.1400, 1.1350 and 1.1300. EUR/GBP extended losses to 0.75523 (beginning of 2008 levels). Large option barriers at 0.76 should keep the selling pressures tight on the cross before the week’s closing bell.