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ECB Preview: Bullish EUR/USD Setup Vulnerable to Verbal Intervention

ECB Preview: Bullish EUR/USD Setup Vulnerable to Verbal Intervention

2014-07-02 14:30:00
David Song, Currency Strategist
Share:

- European Central Bank (ECB) to Keep Rates on Hold & Retain Dovish Tone

- Will Governing Council Provide Further Details on Non-Standard Measures?

Trading the News: European Central Bank (ECB) Interest Rate Decision

The EUR/USD may struggle to maintain the rebound from June should the European Central Bank (ECB) adopt a more dovish tone for monetary policy.

What’s Expected:

EUR/USD ECB

Click Here for the DailyFX Calendar

Why Is This Event Important:

Indeed, ECB President Mario Draghi make a greater effort to weaken the Euro as the resilience in the single-currency heightens the threat for deflation, but the central bank may refrain from laying out a more detailed easing schedule as the central bank monitors the impact of negative deposit rates.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Unemployment Rate (MAY)

11.7%

11.6%

Employment (QoQ) (1Q)

--

0.1%

Retail Sales (MoM) (APR)

0.0%

0.4%

We may get more of the same from the ECB as the pickup in private sector consumption paired with the downtick in unemployment raises the fundamental outlook for the monetary union, and the EUR/USD may continue to appreciate in July should the Governing Council adopt a more neutral tone for monetary policy.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Consumer Price Index (YoY) (JUN A)

0.5%

0.5%

Economic Confidence (JUN)

103.0

102.0

Purchasing Manager Index- Composite (JUN P)

53.4

52.8

Nevertheless, the ECB may sounds increasingly dovish this time around amid the persistent weakness in private sector lending along with the downturn in confidence, and the Euro may come under increased pressure in the second-half of the year should the central bank show a greater willingness to implement the non-standard measures (T-LTRO & QE) ahead of schedule.

Join DailyFX on Demand to Cover the Entire ECB Rate Decision!

How To Trade This Event Risk(Video)

Bullish EUR Trade: ECB Softens Dovish Tone & Sticks to Current Policy

  • Need green, five-minute candle following the policy statement to consider a long EUR/USD position
  • If market reaction favors a long trade, buy EUR/USD with two separate position
  • Set stop at the near-by swing low/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

Bearish EUR Trade: Governing Council Provides Further Details on Non-Standard Measures

  • Need red, five-minute candle to favor a short EUR/USD trade
  • Implement same strategy as the bullish euro trade, just in the opposite direction

Read More:

COT Positioning is Extreme Across the Board

July Forex Seasonality Foresees More Dollar Weakness versus Aussie, Pound

Potential Price Targets For The Release

EUR/USD Daily

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Watching Opening Monthly Range as Ascending Channel Takes Shape
  • Interim Resistance: 1.3770 (38.2% expansion) to 1.3780 (38.2% retracement)
  • Interim Support: 1.3490 (50.0% retracement) to 1.3500 Pivot

Impact that the ECB rate decision has had on EUR/USD during the last meeting

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

JUN

06/05/2014 11:45 GMT

0.10%

0.15%

-72

+57

June 2014 European Central Bank Interest Rate Decision

ECB Preview: Bullish EUR/USD Setup Vulnerable to Verbal Intervention

The European Central Bank pushed into uncharted territory as the Governing Council cut the benchmark interest rate to 0.15%, pushed deposit rates into negative territory, and saw scope for more non-standard measures (T-LTRO & QE) in an effort to stem the risk for deflation, while encouraging private-sector lending to small and medium-sized enterprises (SME). The EUR/USD tumbled to 1.3501 following the initial announcement, but the single currency traded higher following the press conference with President Mario Draghi as the central bank refrained from announced a detailed schedule for its easing cycle.

--- 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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