Having dropped 388bps since Draghi's press conference, Monday's rebound is entirely reasonable. That said, last week's move dealt severe technical damage and the bounce appears to be over. During Monday's European session, we saw Euro grind higher, maxing out at 1.1055. During US trading, new highs were made during the noon and 1pm hours. However, both attempts failed to close above the overnight session high and the currency has continued to weaken throughout the 2nd half of the trading day. (Exception: EUR saw a bounce ~4pm on BBG report of hawkish French finmin.)
Successive closes above 1.1055 and 1.1072 (corresponding w/ the prior bullish trendline from March lows, which is now resistance), will give pause to my view and lend consideration of a 50% retracement to 1.1192. Otherwise, momentum is firmly to the downside, and selling will continue. First through the 1.1000 level and on down to 1.0864.
As I commented after Draghi's press conference last week, shorting the Euro is easy again because the ECB is now the Dollar's driver. Prior to the September FOMC meeting, the EUR/USD trade was characterized by carry-trade unwinds, but principally a strong USD, driven by the Fed:
Advent of Fed hikes --> strong USD --> weak EUR
Thus, once the Fed balked, market participants inverted this thesis and said: no Fed hikes --> weak USD --> strong EUR.
Market participants forgot that currency pairs are ratios and they forgot about Soros' reflexivity. The dollar can be strong because the Euro is weak, and taken one step further, the Euro can be further weakened, because the dollar is stronger. That's exactly what we saw play out last week and what we'll see moving forward. Put all of the granular analysis aside. The key to EUR/USD is that the Fed is no longer the Dollar's driver. Monetary policy divergence between the Fed and the rest of the world's central banks will drive the dollar higher, nearly regardless of what the Fed does or doesn't do.
All of this is a long winded way of saying that despite any technical counter-trend bounces, EUR divided by USD is moving lower. Given the degree to which market participants (via CFTC data) are on the wrong side of the trade, the descent could be much quicker than anticipated.
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After the US markets closed on Monday BBG reported the French FinMin as saying it was difficult to expand QE. That opened the gates for EUR bulls. The weird overnight Yen strength coupled with weak US macro data all supported carry trade unwinds as SPY fell early in Tuesday's session.
During EUR's overnight/morning ascent, we saw the pair trade above 1.1070, through the bullish trendline from March lows (now resistance) and fail! EUR is back below Sunday's overnight resistance and continuing to move lower. The technical story is unchanged. Expect EUR to resume its decline.