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Trade Setups in EUR/JPY, EUR/GBP, EUR/USD Before and After ECB

Trade Setups in EUR/JPY, EUR/GBP, EUR/USD Before and After ECB

2014-09-04 10:40:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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Talking Points:

- EURUSD support found near September 2013 swing lows.

- ECB might unveil ABS-program but not Fed-styled QE.

- Euro bears shouldn't expect QE from ECB this week.

The day of reckoning has arrived for the European Central Bank, after what has been a tnese build up in expectations the past week-plus after President Mario Draghi's speech at the Jackson Hole Economic Policy Symposium. The August 22 speech paved the way for fresh expectations about new easing measures as the region's growth, inflation, and employment prospects all withered in tandem by mid-2014.

Recent economic data has been so poor that another dip into recession across the Euro-Zone is possible – the third recession since the start of the global financial crises beginning in 2007. The Euro Citi Economic Surprise Index has fallen to -53.8 today, the lowest level of the year (for comparison, the US Dollar CESI is +41.2).

The scope for action today is probably limited, considering the banking stress tests are still underway. Even if a rate cut is put into place - contradicting ECB President Draghi's stance that rates had "reached the lower bound" - a recent Reuters poll showed that 21 of the 23 traders questioned believed a 10-bps rate cut wouldn't help boost interbank lending in the region.

If something along the lines of QE is announced, the predominant EUR-bearish trend of the past four months will probably rear its ugly head once more. But if the market comes away disappointed with the ECB, there are actionable reversal opportunities developing in the EUR-complex, like this flag in EURGBP:

EURGBP Daily Chart - April 2012 to Present

Trade Setups in EUR/JPY, EUR/GBP, EUR/USD Before and After ECB

See the above video for technical considerations in EURJPY, EURGBP, and EURUSD ahead of the European Central Bank's policy meeting today. I'll be covering the event live starting at 11:30 GMT in the DailyFX Live Trading Room.

Read more: EUR/JPY, EUR/USD Near Potential Reversal Points Ahead of ECB

--- Written by Christopher Vecchio, Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

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