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Dovish ECB to Fuel Bearish EUR/USD Outlook- 1.0500 in Focus

Dovish ECB to Fuel Bearish EUR/USD Outlook- 1.0500 in Focus

2015-04-15 08:00:00
David Song, Shuyang Ren,
Share:

- European Central Bank (ECB) to Keep Rates on Hold, Retain EUR 60B QE Program.

- Will ECB President Mario Draghi Speak Out Against the ‘Taper Tantrum?’

For more updates, sign up for David's e-mail distribution list.

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

The fresh batch of rhetoric coming out of the European Central Bank (ECB) may heighten the bearish sentiment surrounding the EUR/USD should President Mario Draghi endorse a dovish outlook for monetary policy and stick to the EUR60B asset-purchase program.

What’s Expected:

EUR/USD ECB

Click Here for the DailyFX Calendar

Why Is This Event Important:However, we may see growing speculation for a ‘taper tantrum’ in the euro-area should Mr. Draghi adopt a more upbeat tone for the region and talk down expectations for more non-standard measures as the recent developments coming out of the monetary union beat market forecasts.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Retail Sales (MoM) (FEB)

-0.2%

-0.2%

Consumer Price Index Core (YoY) (MAR A)

0.7%

0.6%

M3 Money Supply (YoY) (FEB)

4.3%

4.0%

The Governing Council may keep the door open to further embark on its easing cycle amid slowing price growth paired with the ongoing contraction in private-sector lending, and a greater willingness to implement more non-standard measures may generate fresh-lows in EUR/USD amid the deviation in the policy outlook.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

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

0.4%

1.1%

Economic Confidence (MAR)

103.0

103.9

Construction Output (MoM) (JAN)

--

1.9%

Nevertheless, we may get more of the same from the ECB amid the series of positive data prints coming out of the euro-area, and the single-currency may face a more meaningful correction over the near-term should the central bank implement a more hawkish twist to the forward-guidance for monetary policy.

Join DailyFX on Demand for Coverage of the Entire ECB Rate Decision!

How To Trade This Event Risk(Video)

Bearish EUR Trade: ECB Stays on Course & Talks Down ‘Taper Tantrum’

  • Need red, five-minute candle following the policy announcement to consider a short EUR/USD trade.
  • If market reaction favors a bearish Euro trade, sell EUR/USD with two separate position.
  • Set stop at the near-by swing high/reasonable distance from cost; need 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 Improved Outlook

  • 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:

COT-Euro Positioning Little Changed from Record

AUD/USD Vulnerable to Slowing China GDP- 0.7570 Support in Focus

Potential Price Targets For The Release

EUR/USD Daily Chart

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Long-term outlook for EUR/USD remains bearish especially as the Relative Strength Index (RSI) retains the downward trend carried over from the previous year.
  • DailyFX Speculative Sentiment Index (SSI) shows the retail FX crowd remains net-short EUR/USD since March 9, with the ratio currently holding at -1.50.
  • Interim Resistance: 1.0970 (38.2% expansion) to 1.0990 (50% retracement)
  • Interim Support: 1.0487 (3/13 close) to 1.0515 (50% expansion)

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)

MAR 2015

03/05/2015 12:45 & 13:30 GMT

0.05%

0.05%

+28

-30

March 2015 European Central Bank Interest Rate Decision

EUR/USD Chart

The European Central Bank (ECB) retained the benchmark rate at the record-low of 0.05%, while President Mario Draghi announced a EUR 60B/month quantitative easing (QE) program, which would include purchases of sovereign bonds, as well as asset-backed securities and covered bonds to achieve a EUR 1T expansion in the balance sheet. At the same time, ECB also raises its growth and inflation forecasts through 2017 as the central bank anticipates the non-standard measures along with a lower exchange rate to spur a stronger recovery in the euro-area. Despite the initial uptick in EUR/USD, the single currency struggled to hold its ground following the QE announcement, with the pair slipping below the 1.1050 region to close the day at 1.1024.

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

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

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