Post-ECB Autopsy and Setups for NFPs – EUR/USD and AUD/USD

Talking Points:

- EURJPY long from 141.50, Stops at 142.30 (+80) and 141.50 (0), Target open

- EURUSD long from 1.3825, Stop at 1.3715, Target open

- AUDUSD long from 0.9090, Stop at 0.9000, Target 0.9500

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A sigh of relief after several weeks of waiting: the Euro finally broke out of its recent ranges versus the Japanese Yen and the US Dollars (to the upside) after the ECB stayed put - as they should have and as we expected.

Our long EURJPY and EURUSD positions were triggered (see above for parameters and watch the video for more detail), which we've been watching for quite a few days (see: here, here, and here).

Event note: The ECB has made its position clear: it does not want to inject more liquidity into the financial system just to boost inflation. The Euro is strong, and yes it may be hurting competition; but would inflation help in an environment marked by weak consumption, low wage growth, and high unemployment help right now? No.

The ECB evidently believes that any further liquidity measures will only boost asset values (the German voice); the ECB wants inflation organically from higher consumption and job creation (they need credit growth for SMEs, which is why they'll eventually resort to a BoE-styled Funding for Lending Scheme (FLS)).

Something else to consider why the ECB hasn't opted for more liquidity right now is because of the AQR (stress tests). Another liquidity injection during the AQR could signal to the market that the ECB discovered something unknown and materially negative once they began to review banks' balance sheets.

This apprehension to ease more during the stress tests is only the case because of the context of recent economic data: inflation is ticking back up, the PMI surveys are improved, and sovereign yields are low. "Why now?" could be a damaging question to raise in investors' minds before the test results in November 2014, creating unnecessary confusion during a necessary era of deleveraging.

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail [email protected]

Follow him on Twitter at @CVecchioFX