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EUR/USD... Why such a huge move?

  • Post #1
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  • First Post: Dec 3, 2015 9:25am Dec 3, 2015 9:25am
Can any one please explain, why did EUR/USD had such a huge bullish move?

In the past, whenever ECB introduced additional QE the EUR vs USD was turning to the week side. Why this time EUR turned out to be bullish? Is this because of the deposit rate change from 10 points to -30?

I have a hard time to understand the reasons. Can any one please explain it in plain English?

Thank you.
Fundamental news, in this case monetary policy decisions, don't "directly" affect price. They are first funneled through trader's hope and expectations and are then priced into the market. This is important to understand. So while the ECB might have applied further easing measures, the market might have expected a more aggressive stance. The largest technical factor here was that E/U price was already at its lower long-term range--in other words, heavily oversold. The market in these kind of cases use any "excuse" in order to climb up. It was therefore already predisposed to a long move and the ECB news release gave the market this "excuse".

However, this event should make you think about weather predicting news is a good idea. First you need to predict the outcome of the policy, then you are required to predict how traders with react to this prediction. All of this is occurring in a potentially illiquid environment.

Q
Quoting paka
Can any one please explain, why did EUR/USD had such a huge bullish move? In the past, whenever ECB introduced additional QE the EUR vs USD was turning to the week side. Why this time EUR turned out to be bullish? Is this because of the deposit rate change from 10 points to -30? I have a hard time to understand the reasons. Can any one please explain it in plain English? Thank you.
Hi paka!

Market expected Draghi to deliver and he didn't. They were disappointed! Simple as that.

What happens is that the market will build positions in ahead of the day. When the day comes the market will expect certain numbers.
If a CB fails to hit expectations, then you'll get an unwind of positions.

rgds
SK
I much appreciate your inputs guys. I am well aware of all the factors you mentioned.

But, when I read "Draghi did not deliver", does it mean there was a higher QE expected? (http://www.marketpulse.com/20151203/726515/).
I already start adding the dots, however, it still seems is more a technical bounce than solid fundamental reasoning.

On the other hand, such news as FT delivered does not seem to be well mirrored in the recent bounce (http://www.businessinsider.com/ft-pu...arly-2015-12); would you agree?
Quoting Quinton
Fundamental news, in this case monetary policy decisions, don't "directly" affect price. They are first funneled through trader's hope and expectations and are then priced into the market. This is important to understand. So while the ECB might have applied further easing measures, the market might have expected a more aggressive stance. The largest technical factor here was that E/U price was already at its lower long-term range--in other words, heavily oversold. The market in these kind of cases use any "excuse" in order to climb up. It was therefore...
Did any traders apply that into their trading and profit off it?
I still cannot make sense of the news such as:
"The Frankfurt-based ECB will extend quantitative easing by six months until at least March 2017 at the current rate of 60 billion euros a month, and broaden the assets purchased to include local and regional debt, ECB President Mario Draghi said on Thursday. The Governing Council earlier reduced its deposit rate by 10 basis points to minus 0.3 percent."
(http://www.bloomberg.com/news/articl...broader-buying)

How does it play out together? If QE is sustained shouldn't it bring EUR/USD lower?

If not, then it appears to be the whole play based on sustained QE and pure technicals.
Maybe I have my answer:
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Quoting paka
Can any one please explain, why did EUR/USD had such a huge bullish move?
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  • Post #9
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  • Edited 11:43am Dec 3, 2015 11:25am | Edited 11:43am
Quoting paka
I much appreciate your inputs guys. I am well aware of all the factors you mentioned. But, when I read "Draghi did not deliver", does it mean there was a higher QE expected? (http://www.marketpulse.com/20151203/726515/). I already start adding the dots, however, it still seems is more a technical bounce than solid fundamental reasoning. On the other hand, such news as FT delivered does not seem to be well mirrored in the recent bounce (http://www.businessinsider.com/ft-pu...arly-2015-12); would...
Yes!
Expectations based on a dovish Draghi and ECB running up to the day.
QE purchases on top of the already EUR60.0B= +EUR10-20B
Depo rate-0.2%=-0.2% (dual tier was thrown in here as an option also)
Purchase duration window(current Sep 2016)= up to Sep 2017 or even open ended


There are other things at play here also!
Remember, with EURUSD, you also have the USD component.
Think about now the US and the FED and what COULD happen say on Friday or even when they meet to give their verdict on rates.

You have to think about 10 steps ahead and then maybe you'll be able to find edge.
See how you are thinking about all this now paka...you're too slow!

I have not been trading anything EUR related myself, but only longs in AUDNZD.

rgds
SK
Quoting forex_fairy
{quote} Did any traders apply that into their trading and profit off it?

It is possible to do so, but don't bank on trading with any significant size during news events. Liquidity gaps make this too risky.

__________________________________________
>> Quinton's Simple & Effortless Trading thread
Quoting skfx
If a CB fails to hit expectations, then you'll get an unwind of positions. rgds SK
short covering, fiber downtrend should resume with Fed on tap for Dec liftoff
"If The Fool persists in his Folly he will become wise." - William Blake
Quoting The Fool
{quote} short covering, fiber downtrend should resume with Fed on tap for Dec liftoff
Sounds good to me!
early hinted ECB moves by Draghi were alredy priced in eurusd, today market made the correction due to weak move of ECB. if ECB would have been more hawkish eurusd would break down and then pullback. but dowish actions of draghi coused the correction.
more, every move even caused by ecb is actually corrections before fed decision release. that is the big day.

understand that, the gap (fast eurusd down move , you can call it hidden gap) opened by draghi on oct,22 is filled today with up move due to more dowish then expected. the reason why draghi sounds dowish is also before every release markets waiting stronger moves but draghi not
Too many shorts on the same side. At the moment the price started to go up, stop losses were triggered, creating thus an extra demand from the long side, and where stop losses were again triggered. Itīs called "the cascade effect"

cheers
Sono
http://news.forexlive.com/!/former-e...cards-20151203

Trichet saying the same from other way around, while he is an exbanker..



Quoting vasily
early hinted ECB moves by Draghi were alredy priced in eurusd, today market made the correction due to weak move of ECB. if ECB would have been more hawkish eurusd would break down and then pullback. but dowish actions of draghi coused the correction. more, every move even caused by ecb is actually corrections before fed decision release. that is the big day. understand that, the gap (fast eurusd down move , you can call it hidden gap) opened by draghi on oct,22 is filled today with up move due to more dowish then expected. the reason why draghi...
Well, GS got it half right --- EU certainly moved 3 big figures on the day!

Quoting skfx
I have not been trading anything EUR related myself, but only longs in AUDNZD.
Like you, SK, I'm glad I stayed out of EUR. I guessed that EU was oversold, and that anything less than a very dovish outcome was already priced in, but I certainly didn't anticipate that result.
Probably it is just price correction, as both the central banks have to balance each other out.
if you are "glad" this time, next time you will not so you actually trading depending on luck
Quoting hanover
Well, GS got it half right --- EU certainly moved 3 big figures on the day! {quote} Like you, SK, I'm glad I stayed out of EUR. I guessed that EU was oversold, and that anything less than a very dovish outcome was already priced in, but I certainly didn't anticipate that result.
its time to work
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Quoting paka
Can any one please explain, why did EUR/USD had such a huge bullish move? In the past, whenever ECB introduced additional QE the EUR vs USD was turning to the week side. Why this time EUR turned out to be bullish? Is this because of the deposit rate change from 10 points to -30? I have a hard time to understand the reasons. Can any one please explain it in plain English? Thank you.
My hypothesis is that with lower interest rates and expanded QE program, European stock market is likely to outperform US stock market where rates will be on rise. So a great deal of USD was raised by selling US stocks and that was used to buy euro to invest in European stocks.
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