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T-Minus 0: Trade Setups in EUR as ECB Prepares for QE Liftoff

T-Minus 0: Trade Setups in EUR as ECB Prepares for QE Liftoff

Talking Points:

- H4 close above 1.1640 could see big short covering in EURUSD.

- EURGBP breakdown remains valid below 0.7750.

- See the DailyFX Economic Calendar for Thursday, January 22, 2015.

The moment we've all been waiting for since early-December has finally arrived. Will speculation around the ECB live up to the hype?

The Hype

- The European Court of Justice last week (essentially) ruled that there were no major legal hurdles between the ECB and a QE program.

- The Swiss National Bank's surprise decision to remove the EURCHF floor in the face of rising costs of maintaining the floor.

- Draghi's preferred market-measure of inflation slumped below 1.200% by the end of last week.

- The ECB balance sheet is mostly unchanged over the past month; the TLTROs and ABS program have been insufficient.

The Hurdle

- The ECB's pre-announcement leak sent EURUSD into a >100-pip spin yesterday morning. The basis? A €50bn/month QE program that would bring the ECB's balance sheet to roughly €3.2 trillion by the end of 2016.

- For a true surprise the ECB now needs to show that it is willing to go beyond these expected parameters.

Disappointment can be particularly explosive today for volatility, insofar as the market is already exceptionally short EUR. The futures market is currently as saturated with Euro short positions as it was in July 2012, when the Euro bottomed. Furthermore, short positioning has ratcheted up the past four weeks. For the week ended January 13, there were 167.9K net-short contracts; for the week ended December 9, 2014, there were 136.9K net-short contracts.

See the above video for our expectations going into the ECB meeting as well as technical considerations and trade ideas in EURUSD, EURGBP, NZDUSD and GBPCAD.

Join me in the DailyFX Live Trading Room today at 07:30 EST/12:30 GMT for live coverage of the ECB rate decision.

Read more: T-Minus 1: Setting Expectations for Tomorrow's ECB Meeting

Note: FXCM, Inc., parent company of DailyFX, has raised margin requirements ahead of volatility risk.

--- Written by Christopher Vecchio, Currency Strategist

To contact Christopher Vecchio, e-mail

Follow him on Twitter at @CVecchioFX

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.