Today has certainly been an explosively volatile trading session for the euro, despite the European Central Bank leaving its key interest rates and bond purchase stimulus program unchanged.
The real action started during Mario Draghi’s press conference, where euro bulls and bears were engaged in a fierce tug of war as investors tried to get a fix on the implications of his speech. Although Draghi stated that the recent volatility in the euro required close attention and is a source of uncertainty, he skillfully prepared the market to expect a QE tapering announcement in October. However, if the euro continues to trade higher, it could be pushed out to December.
Market players seemed more interested in Europe's encouraging macro-fundamentals. With the economy expanding more than expected in the first half of 2017, it presents a strong argument to taper QE. However, a QE taper is likely to strengthen the mighty euro further, which may fuel concerns over the inflation outlook and growth prospects. A key takeaway from September’s ECB meeting and something which may continue to support the euro is Draghi’s statement that the bulk of QE decisions will be taken in October.
From a technical standpoint, the euro/U.S. dollar (EUR/USD) currency pair remains bullish on the daily charts. The breakout above 1.2000 should encourage a further appreciation towards 1.2080 and 1.2140, respectively. In an alternative scenario, repeated weakness below 1.1970 is likely to trigger a selloff towards 1.1900.