EUR/USD: 130 pip round-turn on ECB, where to from here?

Currently, EUR/USD is trading at 1.2008, up 0.77% on the day, having posted a daily high at 1.2060 and low at 1.1914.

Today was all about the ECB. However, once again, Draghi conducted a finely balanced Press conference, but much to be expected, considering the strength of the euro, (and it being "a source of uncertainty" - Draghi said in Q&E), and the diminishing divergence between the Fed and other Central Banks, such as between the BoC, the RBA and the ECB all of which are titled more towards the hawkish side, especially in the case of the BoC yesterday hiking rates.

The euro was a 130 pip round turn, (1.1931/59), over the announcements from the ECB and analysts at Westpac offered the key conclusions from today's Central Bank event:

• "The ECB avoided overt jawboning over EUR but cited that its strength was having a minor dampening effect on inflation pressures whilst also noting “volatility” as a source of concern. This would imply a cap should EUR move strongly whilst conceding the reasons why is stronger
• Tapering discussions have begun on a preliminary basis but are unlikely to be resolved by October and so full guidance is likely to be pushed out to December. Flexibility in APP suggested that periphery can be purchased to avoid scarcity issues, so narrowing spreads
• Forecast changes lifted current growth but lowered forward inflation whilst keeping forwarded growth unchanged"

Where from here?

The status quo persists, and that is looking at whether the Fed can continue hiking rate this year or indeed whether there will be a reduction of the balance sheet commencing after the next meeting later this month. Washington remains a key political driver and indeed geopolitical tensions remain around N.Korea. 

Trump, Schumer agree to pursue plan to repeal the debt ceiling - Washington Post

On the above, analysts at Rabobank offered a special report:

• "The deal between President Trump and the Democrats to avert a government shutdown and default has reversed the recent rise in yields on treasuries that were due to mature near the implied default window.
• However, if the deal is approved by Congress there will be a new deadline for a government shutdown in December, while the debt ceiling will return in 2018, several months before the midterm elections.
• More generally, this deal could mark the shift of Trump from being a Republican President to acting like an Independent President.
• Trump’s bipartisan approach opens the door to more progress on legislation, but both President Trump and the Republicans will have to compromise as the Democrats now have increased leverage.
• This could reduce the size of tax cuts for corporations and high income individuals that President Trump and the Republicans have in mind.
• Meanwhile, the deal will make it easier for the Fed to announce the start of balance sheet normalization on September 20 with implementation shortly thereafter.
• However, yesterday’s resignation by Fed Chairman Fischer has further reduced the probability of a third rate hike this year."

EUR/USD levels

EUR/USD appears supported around 1.1900 – Scotiabank

Meanwhile, it seems the upside is now capped just above the July 2012 swing low of circa 1.2040 and 1.2060 just before the August high of 1.2070. 1.2084 would be a hard resistance logically speaking given it will be the 50% retracement between the low of Jan 2017 and the 2013 high and 1.2169 would be the same for the 2014 high. To the downside, the levels are as follows: 1.1980 Daily High Sept 1, 1.1950 Daily High Sept 6, 1.1917 10-Day MA, 1.1850 Daily Low Sept 1, 1.1843 21-Day MA, 1.1830 30-Day MA.