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Euro to Resume Bullish Trend on Less-Dovish ECB

By , Currency Analyst
07 November 2013 08:00 GMT

- European Central Bank (ECB) to Hold at 0.50%; Forward-Guidance in Focus

- President Mario Draghi Under Pressure to Weaken Euro- Verbal Intervention?

Trading the News: European Central Bank Interest Rate Decision

The European Central Bank (ECB) is widely expected to retain its current policy in November, but the Governing Council may show a greater willingness to further embark on its easing cycle amid the growth threat for deflation.

What’s Expected:

Time of release:11/07/2013 12:45 GMT, 7:45 EST

Primary Pair Impact: EURUSD

Expected: 0.50%

Previous: 0.50%

DailyFX Forecast: 0.50%

Why Is This Event Important:

Indeed, there’s growing bets that the ECB will deliver another rate before the end of the year, but we may see President Mario Draghi implement his own style of ‘verbal intervention’ as European policy makers look for a weaker Euro exchange rate.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Euro-Zone Producer Prices (YoY) (SEP)

-0.8%

-0.9%

Euro-Zone Consumer Price Index (YoY) (OCT A)

1.1%

0.7%

Euro-Zone Unemployment Rate (SEP)

12.0%

12.2%

The ECB may have little choice but to implement more non-standard measures as inflation continues to undershoot the 2% target, and the central bank may also look to weaken the single currency in an effort to combat the threat for deflation.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Euro-Zone Sentix Investor Confidence (NOV)

6.2

9.3

Euro-Zone Trade Balance s.a. (AUG)

11.8B

12.3B

Euro-Zone Retail Sales (MoM) (AUG)

0.2%

0.7%

However, the ECB may preserve its wait-and-see approach amid the bright signs coming out of the economy, and the policy meeting may spur a longer-term rally in the Euro should the central bank talk down bets for more easing.

How To Trade This Event Risk(Video)

*Trading the ECB interest rate decision may not be as clear cut as some of our other trade setups as the press conference with President Draghi ends with a Q&A session

Join DailyFX on Demand for Full Coverage of the ECB Meeting

Bearish EUR Trade: ECB Sees Need for More Monetary Stimulus

  • Need to see red, five-minute candle following the decision/statement to consider a short Euro trade
  • If market reaction favors a short trade, sell EURUSD with two separate position
  • Set stop at the near-by swing high/reasonable distance from cost; at least 1:1 risk-to-reward
  • Move stop to entry on remaining position once initial target is met, set reasonable limit

Bullish EUR Trade: Governing Council to Remain on Sideline

  • Need green, five-minute candle to favor a long EURUSD trade
  • Implement same strategy as the bearish euro trade, just in the opposite direction

Potential Price Targets For The Rate Decision

EURUSD Daily

Forex_Euro_to_Resume_Bullish_Trend_on_Less-Dovish_ECB_body_Picture_2.png, Euro to Resume Bullish Trend on Less-Dovish ECB

Chart - Created Using FXCM Marketscope 2.0

  • Retains Bullish Trend; Continues to Close Above Support
  • Relative Strength Index Turns Around Ahead of 37
  • Interim Resistance: 1.3530-40 (61.8 retracement)
  • Interim Support: 1.3455 (50.0 expansion) to 1.3490 (50.0 retracement)

Impact that the European Central Bank Interest Rate Decision has had on EUR during the last meeting

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

OCT 2013

10/02/2013 11:45 GMT

0.50%

0.50%

+55

+65

October 2013 European Central Bank Interest Rate Decision

Forex_Euro_to_Resume_Bullish_Trend_on_Less-Dovish_ECB_body_ScreenShot325.png, Euro to Resume Bullish Trend on Less-Dovish ECB

The European Central Bank stuck to its current policy in October, with President Mario Draghi reiterating that inflation expectations remain ‘firmly anchored,’ but the central bank retained its forward-guidance for monetary policy and pledged to keep rates at present or lower for an extended period of time. Despite the dovish comments, the ECB’s wait-and-see approach propped up the Euro, with the EURUSD climbing above 1.3600 handle, but we saw the single currency consolidate going into the close as the pair ended the day at 1.3578.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com

Follow me on Twitter at @DavidJSong

To be added to David's e-mail distribution list, please follow this link

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07 November 2013 08:00 GMT