EUR/USD Update... ECB QE?

We already covered one of the stranger moves post F_O_M_C today, F_O_M_C , the Euro decline and $USD advance on Euro weakness.

To understand this is pretty simple terms, a currency is debased when there's massive printing such as the F_E_D engaged in during the Quantitative Easing Episodes, more $USD's floating around lowers the value of $USD's in your possession which is one of the many ironies of QE, those who were responsible savers were punished the most by the F_E_D as they not only couldn't get a decent interest rate that kept up with inflation anywhere, but the buying power of their savings plummeted especially as it relates to food and gas, the "Volatile" CPI components the F_E_D rather ignore.

There are several advantages to debasing your currency, if Greece had control of its own currency rather than being a part of the European Union and using the Euro in which they have no sovereign control over their own currency (the European Central Bank/ECB does), Greece "may" have been able to deflate their currency and wiggle out of some of their problems. Lower currency values usually result in higher exports so if you are a country that does a lot of exporting, it makes it cheaper for other countries to buy your goods and services, however on the flip side, it makes it more expensive to buy imported goods from other countries which also has a flip-side as it increases consumer demand for sovereign products and services.

The Euro's strength vs the $USD was a source of pride among many of my European friends, especially some of the German ones, I kind of chuckled privately knowing it meant US exports would be higher and European Exports would be lower is essence, not all that they might have thought it to be.

The dramatic plunge in the Euro this afternoon sent the $USD skyrocketing, in fact the $USD went from its low of the week to the high of the week in 2.5 hours today.

This also sent the EUR/USD pair lower...

EUR/USD 1 min chart with a negative divegrence in to the weekly highs just before the F_O_M_C and a small relative positive in to the lows of the week just after the F_O_M_C, so it was a pretty big swing.

As you already know, the move was on expectations, for whatever reason that the ECB would engage in US style QE and start monetizing sovereign's debt which the ECB is expressly forbidden to do by its charter. In effect if the ECB went ahead and did what the market was acting like it would do, there would be a Euro-constitutional crisis which would require the ECB's charter be changed which may not be so easy as Germany exerts the most influence and they don't want the ECB buying up Portuguese, Irish, Greek, Spanish and Italian "junk" bonds for lack of a better term.

I don't have a lot of ways of looking at the FX pairs with 3C, I can see short term divergences like the one above, the rest requires a little creativity...

 The 5 min chart of the $USDX shows NO positive divegrence, in fact it's nearly perfectly in line with the $USD's downtrend so today's pop higher is unlikely to hold with no accumulation supporting the move,  this is a true knee jerk move and really on nothing other than wishful thinking, the F_O_M_C did not provide any kind of guidance whatsoever on what the ECB may or may not do, it was a silly move.

 Furthermore as seen earlier today in the USO update in which I covered the $USD extensively, it looks like it's set for more downside as this 30 min 3C chart of the $USDX shows with a leading negative divergence.

As for the Euro...

 This 30 min chart of the Euro shows accumulation at a small base followed by a move higher and then small distribution to send it lower which is typical of the formation of a larger base, as supply is accumulated price rises and has to be knocked down so they can continue to accumulate at the lowest possible price , typically forming something like a "W" base which is what I think we will see here as the signal was in place before the F_O_M_C.

The 7 min Euro chart also shows the same signal for a move lower, but again, I don't think this is typical distribution, but rather steering distribution to get the asset back to the accumulation/base area.

This would suggest a move higher in the Euro and perhaps a more realistic view of QE in Europe.

As for other indicators I can use on the EUR/USD, the Ultimate Oscillator went from an oversold condition to a positive divergence which interrupted the downtrend in the pair.

 Our daily X-Over Screen is just days away from a long/buy signal

And the downtrend ion the EUR?USD was broken as it stopped out in the Trend Channel which carried the majority of the most recent leg down. All of this is a major change in character which leads to changes in trends.

I suspect the knee jerk in the Euro and $USD today at 2 p.m. will both reverse and a new trend will start to develop as the EUR/USD builds a larger base, if that's the case, I'd be looking for an upside reversal in the pair.