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Draghi hints at QE
The European Central Bank chief has suggested that government bonds could be added to the purchasing list early in the year if inflation begins to slip. As I previously stated, January is going to be difficult month for the single currency as talk of quantitative easing and the political upheaval in Greece will erode the value of the euro. Mario Draghi has a track record of talking the euro lower as a weak currency benefits his policy, and I suspect he will continue to do.
German policy makers are opposed to purchasing government bonds but the largest economy in the eurozone may change its mind if its own strength begins to subside. On Monday 5 January, Germany will release its inflation figures and traders are expecting a drop from 0.6% in November to 0.4% in December. I get the impression Germany may become less vocal in its opposition to QE if deflation fears creep into its own nation.
On an hourly chart the euro is oversold so a pullback to $1.21 is possible in the short-term, but $1.20 is the target looking towards the end of the month.