Mario Draghi announces €1.1 trillion quantitative easing program

Mario Draghi announces €1.1 trillion quantitative easing program

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The title of this note was poached from a January 22, 2015 headline in “The Daily Telegraph”, (commonly referred to simply as The Telegraph) which is a daily newspaper published in London. The first line of the first paragraph reads “European Central Bank (ECB) president Mario Draghi unveiled bigger-than-expected quantitative easing measures on Thursday...” It is a relevant look-back because the he last time the euro traded where it is now was January of 2015 and it was on the way down. These days, it is on the way back up.

The euro reached a 31-month high on Wednesday and has fully broken out of a channel it entered on the day the Telegraph published the above ECB announcement. It framed the channel over the next 5 months but took almost 3 years to break out of it. The normal 1st target for a horizontal channel breakout is 50% measured move of the width of the entire channel. That level comes in at approximately 1.1937. Considering that H-channel measurements are more an art or perhaps an inexact science than a strict science, one can consider Wednesday’s high to be “1st target reached”.

Mario Draghi announces €1.1 trillion quantitative easing program

In the chart above, you can see not only the breakout from the channel, but the strength of it. The light blue box is the target range for the breakout, the gray oval represents a clear path of movement for the euro to climb through (100% extension of the old channel is the upper red line). At the time of the low made in January of ’17, many analysts were not just talking about possible parity in the EUR/USD, but how fast it would happen. This was about the mid-point of the “Trump-bump” and near a recent peak in US CPI. Now we have a dollar index just about ready to complete it’s 4 straight down week, a slightly more hawkish ECB and a US Fed nervous about recent softening US economic data.

This brings us to today. The Non-farm payrolls number is the best place to start a euro pullback and a dollar reversal but looking at the chart above it will take more than one number at this point. The euro remains long-term bullish anywhere above 1.1450. The dollar index is currently at the bottom of its own horizontal channel and looks ready to break down. If we get stronger wage components in the payrolls data, the dollar should stabilize and the euro may pullback. If we don’t, the hill gets steeper…and the euro reached 1.2041

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