Today at 12:30 we had the ECBs monetary policy meeting minutes for July. And it looks to be the classic sell the rumour buy the fact scenario.
This morning we have seen EUR/USD sell off right up until the minutes were released. On the release, the Euro sold off on initial accounts that ECB members were showing concerns on the strength of the Euro.
Chart 1: EUR/USD 5 minute
But taking a closer look at what was said during the meeting it appears to me to be less dovish than first thought.
The account showed that "the point was made that, looking ahead, the Governing Council needed to gain more policy space and flexibility to adjust policy and the degree of monetary policy accommodation, if and when needed, in either direction."
Given the current interest rate of 0% and the huge QE program, for the ECB to "gain more policy space and flexibility to adjust monetary policy in either direction", they must tighten monetary policy.
It is widely expected that the ECB's QE program will continue past December this year. However, with the taper in April that saw the QE program reduce from €80 billion to €60 billion per month, it's clear that tapering is still on their minds.
Another notable account noted that "postponing an adjustment for too long could give rise to a misalignment between the Governing Council's communication and its assessment of the state of the economy, which could trigger more pronounced volatility in financial markets when communication eventually had to shift."
Which suggests to me that they want to warn the market before it’s too late.
Despite the members' concerns regarding the stronger Euro, the market has reacted positively to the minutes and I can see why.
On a technical stand point, we have tested the monthly pivot point and seen a bounce. Should we close like this on the daily chart, it again suggests buyers are keeping this market above the pivot and so we should continue to look to the upside.
Chart 2: EUR/USD daily
If we can see this market break through 1.1847, that will then open the 1.19 handle and in turn should that break 1.20 becomes the next target. Until then we are in a consolidation period, whereby you should look to buy on support levels.
If we see the market react to the concerns of a strong Euro, or the dollar has a fight back, then the level to confirm that would be the break of the monthly pivot point (1.1665). The next support would then be found at 1.1612. Should we break through that handle, we find ourselves back into the 1.05 - 1.16 range we found ourselves in for over two years.