The ECB meeting yesterday blew away dovish expectations thanks to a remark made by President Mario Draghi during his press conference: that the Governing Council had a discussion about cutting its deposit rate. At previous meetings, President Draghi suggested that the lower bound of rates had been reached, or rather that the ECB didn’t foresee cutting rates again.
The possible reintroduction of this policy tool has not only stirred speculation about a potential deposit rate cut in December, but also an expansion of the central bank’s current QE program. Similarly, President Draghi’s tone and choice of words may be foreshadowing the ECB’s forthcoming easing: the word “vigilant” was used once more to describe the ECB’s stance on fighting low inflation, a word that he previously unveiled in the September 2014 and December 2014 policy meetings, right before the ECB announced its QE program at the start of 2015.
As a result of the heightened expectations for more ECB easing, FX markets have been thrown into a state of short-term sea change. Significant technical damage may have been done to several EUR-crosses 2015 uptrends, suggesting that the next wave of broad Euro weakness may be beginning. See the above video for technical considerations in EUR/USD, EUR/GBP, EUR/AUD, EUR/CAD, as well as why you need to be selective in bullish USD exposure at the moment.