Last year I warned clients about a nascent downtrend in EUR/USD that would take the european currency to 1.20 USD and below, and we started shorting or hedging around 1.35 . This position was not initiated on the belief the ECB would launch a massive QE as it eventually did, we have always thought there would be some serious obstacles to such kind of folly. Unfortunately Mario Draghi surpassed all expectations and turned out to be as some had feared a money printer of the worst kind, massively depreciating the euro currency and sending european bourses on a mad parabolic rally . The old technical adage "Trade what you see" held true once again, the two mega trades of the past few months were long european stocks, short EUR/USD and fortunately we did not miss those trends fabricated by the mad central bankers in Frankfurt.
But now a pause is in the offing given the extent of those parabolic moves and particularly in EUR/USD the extreme bearish sentiment as seen in the CFTC data. Interestingly, it appears strategists remain very bearish on the euro as well. I must say , I have warned about the european currency plunging below parity with 0.85 as first potential target . Mr Draghi does not know what the consequences of his programs will be and one of them could be EUR/USD spiraling down below 0.80 by the time his money printing is done in late 2016.
However FX markets are famously difficult to predict and large countertrend moves do happen, especially after a downtrend that has seen no monthly gain since its start in july 2014. At this stage a euro rally should be expected, EUR/USD may still move lower just under 1.04 but at some point a rally will take place, and when it comes it could surprise a lot of people.
