The most effective central bank policy in 2012 was from the ECB president, Mario Draghi. He brought credibility to the ECB and helped bolster the currency after his comment on July 26 that the ECB is ‘ready to do whatever it takes.’ Despite the effectiveness of his comments and actions, economic growth is still not improving for the indebted countries.
A LITTLE BACKGROUND
The outright monetary transactions program (OMT) was created to help the struggling southern periphery and euro strength came as borrowing costs declined without it having to be used. The ECB didn’t even have to expand their balance sheet and they were able to temporarily ease the markets concern over the never ending European debt crisis.
CHART ANALYSIS
Price action on euro/dollar (EUR/USD) has maintained a strong bullish stance since last summer, but it is finally starting to hit key resistance. Despite the improving optimism regarding Germany, the euro has hit a wall with the 1.3500 barrier.
KEY LEVELS
Price is also potentially forming a bearish ABCD pattern. If 1.3500 is respected, we could see a corrective pullback towards 1.3250. A breakout above 1.3550 will invalidate any such reversal and potentially open the door for a test of 1.3950.
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