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ECB Cuts Rates and Hints at QE; EUR/USD Falls Below 1.30

European Central Bank's governing council met and voted on monetary policy. It surprised the markets, cutting the benchmark interest rate from 0.15% to 0.05%. The deposit was also reduced from -0.1% to -0.2%, to encourage lending by discouraging saving by commercial banks.

Furthermore, Mario Draghi said that in October the bank will start purchasing asset-backed securities (ABS). Not only that, he hinted that there could be Quantitative Easing on the horizon. ABS and purchases and QE are not the same thing, but they have similar effect of increasing liquidity by increasing more money into the economy on the back of bonds.

The market thus sold the euro. EUR/USD for example has already been bearish and stalled around 1.3150 before the ECB event risk. After the statement and Mario Draghi's press conference, it has fallen below 1.30.

(EUR/USD 4H Char 9/4)

When we look at the daily EUR/USD chart, we can see that the next key support might be in the 1.2775-1.28 area. This area is a support pivot and contains the 61.8% retracement of the 2013-2014 rally.

(EUR/USD Daily Chart 9/4)