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Euro to Threaten Bullish Trend on Detailed ECB Easing Cycle

Euro to Threaten Bullish Trend on Detailed ECB Easing Cycle

2013-12-05 08:00:00
David Song, Gregory Marks,
Share:

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

- President Mario Draghi to Sounds More Dovish; Which Non-Standard Measure is Next?

Trading the News: European Central Bank Interest Rate Decision

The European Central Bank (ECB) is widely expected to adopt a more dovish tone for monetary policy as the Governing Council remains poised to implement more non-standard measures in 2014.

What’s Expected:

Time of release: 12/05/2013 12:45 GMT, 7:45 EST

Primary Pair Impact: EURUSD

Expected: 0.25%

Previous: 0.25%

DailyFX Forecast: 0.25%

Why Is This Event Important:

Given the recent headlines surrounding the ECB, there may be little in terms of new surprises as the Governing Council looks at a range of policy tools (Negative Deposit Rates, Long-Term Refinancing Operations, and Quantitative Easing), but the Euro may struggle to hold its ground following the policy meeting should President Mario Draghi layout a more detailed schedule for its easing cycle.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Euro-Zone Retail Sales (MoM) (OCT)

0.0%

-0.2%

Euro-Zone Consumer Confidence (NOV A)

-14.0

-15.4

Euro-Zone Unemployment Rate (OCT)

12.2%

12.1%

The ECB may lay out a more detailed timeline for its easing cycle as the underlying weakness in the real economy heightens the threat for deflation, and a material shift in the policy outlook may spark a key reversal in the EURUSD as the pair appears to be carving a head-and-shoulders top.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Euro-Zone Consumer Price Index Estimate (YoY) (NOV)

0.8%

0.9%

Euro-Zone Economic Confidence (NOV)

98.0

98.5

Euro-Zone Gross Domestic Product (3Q P)

0.1%

0.1%

However, the ECB may not sound so dovish this time around amid the small uptick in price growth, and the Euro may continue to track higher over the near-term as it retains the bullish trend carried over from November.

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 Lays Out Detailed Easing Schedule

  • 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 Adopts More Neutral Tone

  • 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_Threaten_Bullish_Trend_on_Detailed_ECB_Easing_Cycle_body_Picture_2.png, Euro to Threaten Bullish Trend on Detailed ECB Easing Cycle

Chart - Created Using FXCM Marketscope 2.0

  • Continues to Threaten Trendline Support; Head-and-Shoulders Formation?
  • Bearish Break in Relative Strength Index to Provide Confirmation/Conviction
  • Interim Resistance: 1.3650-60 (78.6% expansion)
  • Interim Support: 1.3290 (50.% retracement) to 1.3300 Pivot

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)

NOV 2013

11/07/2013 12:45 GMT

0.50%

0.25%

-180

-89

November 2013 European Central Bank Interest Rate Decision

Forex_Euro_to_Threaten_Bullish_Trend_on_Detailed_ECB_Easing_Cycle_body_Picture_1.png, Euro to Threaten Bullish Trend on Detailed ECB Easing Cycle

In a surprise move, the European Central Bank cut its key benchmark interest rate last month by 25bps from 0.50% to 0.25%. The announcement was slightly delayed and this led to immediate selling of Euro crosses. When the release finally hit the wires, the Euro continued to come under pressure and was down almost 200 pips against the greenback a little under an hour after the announcement. ECB President Mario Draghi did his best to talk down the Euro further by making it clear that the central bank would consider negative deposit facility rates in an attempt to spur lending by Eurozone banks. After this rate cut, it looks increasingly more likely that such action would not be taken unless CPI prints start to echo signs of coming deflation.

--- 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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