ECB Holds Rates; Trichet Holds Final Post-Meeting Conference: Jean Claude Trichet held his final press conference following today's European Central Bank meeting, where the benchmark rate was held at 1.50%. More importantly, the ECB decided to offer 12-month loans in unlimited amounts in an attempt to provide extra liquidity to troubled European banks. The Governing Council also decided to restart its covered bond purchase program (dubbed CBPP2), setting aside €40 billion for this program. The ECB kept interest rates at 1.5%, and while seeing inflation continuing to remain above the 2% target over the next few months. Trichet also said that inflation will fall back after a couple of months, which will be an important prerequisite for the monetary policies to be effective.
Triangle Broken: In the 1H EUR/USD chart, we can see a diagonal triangle, or rising wedge, broken to the downside by a strong candle ahead of Trichet's press conference. The reaction to the speech was very subtle, developing a 1H doji candle. Now it will be important to see how a pullback develops. If the market stays below 1.3320, it can be said that the EUR/USD bears are in control. Also a break below 1.3230 will suggest EUR/USD bulls are finally backing down from this week's corrective rally. Below 1.3230, the near-term support to be tested is this week's low near 1.3150. It might be hard to push lower with more or less a status-quo Trichet speech, especially with the Non-Farm Payroll still ahead Friday. But after this week closes, if the market is below 1.3150, a bearish continuation is very likely at hand. As we have mentioned here at FXTimes, bearish continuation has a first target of 1.3046, 61.8% retracement of the rally since June 2010 to April 2011.
As mentioned before, the downside does not open up until we have a break below 1.3230. In the 5-min chart, you can see a double bottom forming. If it forms and breaks above 1.3320, let's see if a throwback will respect the double bottom for the retest of 1.34.
After the US stock market open at 9:30AM EDT, as I get ready to post this article, we see the EUR/USD knocking at the pivot that was support and now tested as resistance. If the market stays above 1.3320 in the next hour or two, it is likely to retest 1.34, above which we can open up 1.35-1.3520 (last week's central pivot - or middle of last week's range that was seen as resistance and support). There is a bias to the upside, especially if the S&P500 stays above 1130 and continues rallying, but a break below 1130 should provide further impetus for the EUR/USD to continue lower.
15min S&P 500:
Fan Yang CMT
Chief Technical Strategist