With the Euro down another 200 points this morning, after an initial wobble yesterday, the forex markets have been definitive in their assessment that the programme of QE has been more extensive than expectations. Equity markets also agree, with the DAX and CAC both around 2% higher on the day. There has also been another massive decline in the German 10 year Bund yield which has plunged 150 basis points in 2 days. So where do the key markets sit as we approach the weekend?
The downward acceleration on the Euro has been huge today, something that has pushed the euro to a new 10 year low. Momentum is incredibly weak but the RSI is reaching record levels around 16, a level at which there was a bout of consolidation in September. Clearly the bears have the bit between their teeth for now, but once the selling pressure starts to abate the euro will be open for a near term technical rally. It is at that stage at which it will be interesting to see how low the euro will go. If there is a mere consolidation it is likely that the sellers will quickly return. The next support is a 100% Fibonacci projection level at $1.1093, however below that the next real support does not come in until $1.0760, the September 2003 low.
The DAX Xetra has absolutely smashed through resistance and for now does not want to stop. The new high ground is not holding back the bulls and after a few days of consolidating around the 61.8% Fibonacci projection at 10293 of the 8355/10093 bull run measured from 9219, a break through Fibonacci levels theoretically implies a move towards the next level. The next level is the 100% projection at 10,957.
The 10 year Bund yield has sharply reversed it gains of earlier in the week, presumably when the market was expecting an underwhelming announcement from the ECB. The bund yield is once more down at record all time lows and is once again moving ever closer towards 0% (the 5 year German Bobl yield recently went negative meaning that if you were to lend money to the German government for 5 years you would be effectively paying for the privilege). Furthermore, the yield curve in Germany continues to flatten.