The European Central Bank (ECB) did not pre-empt the U.S Federal Reserve to cut interest rates on Thursday but hinted towards a rate cut and signals that more monetary easing is on the cards.
ECB president Mario Draghi in his press conference paved the way for a new round of asset repurchases as part of a range of stimulus options in a bid to ensure financial and economic conditions remain favourable.
Draghi also hinted towards an interest rate cut as he sees rates at present or lower levels at least through to the first half of 2020. The Euro reacted to the announcement and fell to a 2-year low against the U.S Dollar.
In his statement to reporters, the ECB President stated that the risk of a recession in the Eurozone was low. This amidst a weakening Manufacturing sector which has slumped to a six-year low with Germany, the Eurozone's biggest economy at a seven-year low. The manufacturing sector was hardest hit due to recording a decline with trade tensions, Brexit uncertainties and the woes of the German auto sector taking their toll.
Taking a closer look at the DAX
The German Index has been filling the triangle pattern for some time now, and a breakout might be on the cards very soon. If the 12295-support level does not hold, we might expect the price action to move lower significantly. A close above the 12450-resistance line would give hope that the price might move higher to 12657 once more.
Source - Bloomberg
Taking a closer look at the EURUSD currency pair
The currency pair has seen extreme volatility from yesterday's interest rate announcement, testing the Head & Shoulders neckline before retreating once more. The technical support line at 1.1124 has been tested numerous times over the last couple of months signaling the importance of the level and that a move lower might be imminent.
Source - Bloomberg
Strategy: One should always consider the inverse correlation between the DAX and the EUR/USD currency pair when trading either of these instruments. One might expect to Long (Buy) the DAX when the EURUSD currency pair is under pressure and vice versa.
Source - KOYFIN
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