“Amber Warning Sign” Issued For EURUSD Bulls

While Draghi’s conference was supposed to be relatively boring, it was anything but, with the EUR first sliding on the statement’s suggestion that more QE is possible, then spiking on upbeat economic comments, then sliding again after Draghi talked down the inflationary outlook but most importantly, when the ECB president said that the ECB did not discuss options for June, nor removing the easing bias for interest rates. This was counter to the latest Reuters trial balloon earlier this week that the ECB were considering changing the language in June.

So what were the responses? On one hand there was BofA’s FX strategist Athanasios Vamvakidis, who said that Draghi is keeping his rethoric “intentionally” uninspiring for investors as the ECB is in no hurry to act, adding that “they have time” and there is “no need to rock the boat” which makes sense with trillions in European debt still yielding negative.

Vamvakidis said that the comment on slightly less negative risks to the economic outlook is positive, but this shouldn’t be a surprise because the ECB wants to prepare the market for a QE tapering later in the year, and as a result the FX trader doesn’t see a sustained impact on the euro.

Yet while many interpretations of Draghi’s speech are possible, in a separate note by Citi’s FXwire team, the bank took a technical approach, and after looking at a chart of the EURUSD, said that it has observed an “amber warning sign” for EURUSD bulls.

This is how it explained its warning:

EURUSD daily chart is indicating that some caution may be warranted in this up move

Some further notes:

  • Having moved to new highs in this up move above the 1.0906 March high, EURUSD looks to be struggling to sustain those gains
  • As a consequence there is a danger that triple momentum divergence is forming on the daily chart (High, higher high  and 3rd higher high on price while momentum has a high, lower high and 3rd lower high)
  • Good support is met at 1.0821-1.0836 (Trend lines, gap open on Sunday night and 200 day moving average
  • A close below this range, if seen, would likely complete the triple divergence and flash “RED” that EURUSD may head lower.
  • Initially a closing of the French election gap at 1.0778 would be a first target followed by support around 1.0570-1.0628.

With the EURUSD trading at session lows and dropping, Citi’s “dovish” take appears to be gaining traction.

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