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Bearish EUR/USD Outlook Vulnerable If ECB Attempts to Buy Time

Bearish EUR/USD Outlook Vulnerable If ECB Attempts to Buy Time

David Song, Shuyang Ren,

- European Central Bank (ECB) to Announce Further Details Surrounding Non-Standard Measures.

- Will ECB President Mario Draghi Talk Down the Euro?

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

Further details surrounding the European Central Bank’s (ECB) asset-back securities (ABS) and covered-bond purchase program may heighten the bearish sentiment surrounding the Euro, but we may see a relief rally in the EUR/USD should the Governing Council use the interest rate decision as an attempt to buy more time.

What’s Expected:


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Why Is This Event Important:

The ECB may refrain from addressing the unanswered questions surrounding the non-standard measures as President Mario Draghi waits for the results of the second targeted long-term refinancing operation (T-LTRO), and the EUR/USD may face a near-term correction should the fresh developments dampen bets for more easing.

Expectations: Bearish Argument/Scenario




Consumer Price Index Core (YoY) (SEP A)



Markit Purchasing Manager Index Composite (SEP P)



Gross Domestic Product (2Q A)



The ECB may sound increasingly dovish amid the growth threat for deflation, and the EUR/USD may face a further decline should the council keep the door open for more non-standard measures, which may quantitative easing (QE).

Risk: Bullish Argument/Scenario




Employment (QoQ) (2Q)



Industrial Production s.a. (MoM) (JUL)



Household Consumption (QoQ) (2Q)



Nevertheless, the ECB may scale back its dovish outlook amid the improvements in the monetary union, and the Euro may face a near-term bounce should the central bank adopt a wait-and-see approach.

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How To Trade This Event Risk(Video)

Bearish EUR Trade: ECB Keeps Door Open for More Non-Standard Measures

  • Need red, five-minute candle following the updated foreward-guidance to consider a short EUR/USD trade
  • If market reaction favors a short Euro trade, sell EUR/USD 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 Tries to Buy More Time

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

Read More:

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COT: US Dollar Speculator Long Position is Largest on Record

Potential Price Targets For The Release


EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • DailyFX Speculative Sentiment Index (SSI) shows retail crowd remains net-short the dollar, with the EUR/USD ratio current sitting at +1.34.
  • Interim Resistance: 1.3010 (50.0% retracement) to 1.3020 (23.6% expansion)
  • Interim Support: 1.2450 (78.6% retracement) to 1.2500 pivot

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


Data Released



Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

SEP 2014

09/04/2014 11:45 GMT





September 2014 European Central Bank Interest Rate Decision


The European Central Bank unexpectedly cut the benchmark interest rate to fresh record low of 0.05% as the downside risks surrounding the growth outlook raises the threat for deflation. The Governing Council also laid out an asset-backed securities (ABS) purchasing plan to further boost private-sector lending, with details to be disclosed at the October 2 policy meeting. As a result, it seems as though the Euro will face additional headwinds over the near to medium-term as the ECB continues to push monetary policy into unchartered territory. The EUR/USD plummeted following the new wave of monetary support, with the pair dropping over 100 pips during the North American trade, but we saw a minor bounce going in the close as the euro-dollar ended the day at 1.2932.

--- Written by David Song, Currency Analyst and Shuyang Ren

To contact David, e-mail Follow me on Twitter at @DavidJSong.

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