The financial markets were shaken by explosive levels of volatility during trading on Thursday following the unexpected over-delivery from the European Central Bank in unleashing aggressive stimulus measures to turbocharge Eurozone growth. In this instance Mario Draghi respected his pledge in doing what he must do in a bid to fight the perilous battle with deflation by slashing key rates to 0%, pushing deposit rates to -0.4% and expanding the bond purchase to €80 billion in a bid to boost inflation. These measures were also complemented with a fresh series of longer-term refinancing operations (LTRO) consequently reinforcing the aggressive stance taken by the ECB and providing some short term inspiration for the Euro to plummet the most since October.
Although a sense of positivity enveloped the global markets following the rate slash decision by the ECB, this was rapidly eroded in the press conference when Mario Draghi dropped a bombshell by indicating no further rate cuts. His comments single-handedly sabotaged the Euro bear rally as anxious investors discarded bets of further action taken by the central bank with fears mounting over the lack of ammunition left to stimulate growth in the Eurozone. It must be understood that the ECB has painfully failed to weaken the Euro while confidence in the ability of the central bank periodically diminishes as these aggressive steps translate to desperation. As expected, Draghi repeated his dovish mantra but had he said nothing at all,then the Euro bears may have continued to dominate across the global currency markets.
Speaking of currency markets, the EURUSD whipsawed with aggression hitting a low of 1.08 before surging to fresh highs above the 1.121 and this turned the pair technically bullish on the daily timeframe. With expectations rapidly fading over further rate cuts by the ECB in the future bullish investors have been provided an opportunity to send the EURUSD towards 1.135. From a technical standpoint, prices are trading above both the 20 and 50 SMA while the MACD has crossed to the upside. Previous resistance at 1.105 should become a dynamic support which should encourage an incline towards 1.135.
ECB jitters hit stock markets
The global stock markets swung frantically on Thursday meandering between losses and gains following the ECB stimulus shocker which caused anxious investors to offload and reload assets in a bid to be on the right side of the trade. Although most equities were offered a welcome boost this was swiftly relinquished at the ECB press conference when expectations of further rate cuts were quashed and risk aversion took center stage. Asian equities have managed to rebound from the post-ECB selloff but may be set to lose steam as sentiment towards the global economy remains quite low. Europe and America concluded Thursday depressed and may continue their downward trajectory as investors scatter away from riskier assets amid the fading expectations of further rate cuts by the ECB. It must be understood that stock markets are still vulnerable and may be poised for further decline in the future as the ECB fiasco compounds to the ongoing global woes.
WTI Oil presses towards $40
WTI oil against all odds has continued to incline with prices edging closer to $40 despite the recent reports illustrating U.S crude stockpiles hitting record highs this week. This unexpected market reaction reinforces how sensitive oil prices have become in an aggressively volatile environment created by expectations of production cuts. Regardless of recent short term gains, this commodity still remains bearish and the excessive oversupply of oil in the extremely saturated markets should continue to haunt investor attraction. With expectations of any OPEC meetings on production levels rapidly diminishing until Iran participates, bears have been provided an opportunity to send prices back down towards $35. From a technical standpoint, $40 is a critical level and sellers need to defend this resistance for a chance to send WTI towards $35 and potentially lower.
Commodity spotlight – Gold
The jitters and risk aversion created by the European Central Bank’s failed attempt to devalue the Euro have offered enough inspiration for Gold bulls to lurch to fresh highs at $1282. This precious metal is in a bull market and may be set to appreciate further as anxious investors scatter away from riskier assets to safe havens amid the ongoing global woes. We live in an age of negative central bank interest rate policies which makes Gold a star performer and such should encourage bulls to send prices to levels not seen since the start of 2015 above $1300. From a technical standpoint, Thursday’s bullish engulfing candle should provide a foundation for Gold to trade towards $1300.
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