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EUR/USD Plagued by Dovish ECB Bets- Will Draghi Buy More Time?

EUR/USD Plagued by Dovish ECB Bets- Will Draghi Buy More Time?

2015-10-22 08:00:00
David Song, Shuyang Ren,
Share:

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

- Will ECB President Mario Draghi Highlight an Imminent Expansion/Extension of Asset-Purchases?

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

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

The European Central Bank (ECB) interest rate decision may trigger a sell-off in EUR/USD amid high expectations for a major announcement, but more of the same from President Mario Draghi and Co. may prop up the single-currency especially as the Governing Council remains in wait-and-see mode.

What’s Expected:

EUR/USD ECB Interest Rate Decision

Click Here for the DailyFX Calendar

Why Is This Event Important:

Even though the ECB stands ready and willing to further embark on its easing cycle, the pickup in private-sector lending suggests that the non-standard measures are having the intended impact, and the central bank may want more time to digest the incoming data as the committee voted unanimously to retain the current policy during the last meeting.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Trade Balance s.a. (AUG)

22.1B

19.8B

Consumer Price Index (YoY) (SEP A)

0.0%

-0.1%

Unemployment Rate (AUG)

10.9%

11.0%

The ECB may show a greater willingness to expand/extend its quantitative easing (QE) program amid the weakening outlook for global growth accompanied by the disinflation environment across the euro-area, and the Euro may continue to give back the advance from earlier this month should the fresh batch of central bank rhetoric point to a more accommodative policy stance.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Economic Confidence (SEP)

104.1

105.6

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

0.3%

0.6%

Gross Domestic Product s.a. (QoQ) (2Q P)

0.3%

0.4%

Nevertheless, the ECB may make another attempt to buy more time as the non-standard measures continue to work their way through the real economy, and the Governing Council may stick to the sidelines throughout the remainder of the year as the central bank’s Outright Monetary Transactions (OMT) helps to boost lending to small and medium-sized enterprises (SME).Join DailyFX on Demand for Coverage of the Entire ECB Rate Decision!

How To Trade This Event Risk(Video)

Bearish EUR Trade: ECB Highlights Imminent Expansion/Extension of QE Program

  • 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: President Draghi Attempts 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:

EUR/USD Still Capped by Outside Day Reversal

USD/JPY Rebound Eyes 121.00- Euro Outlook Hinges on ECB Rate Decision

Potential Price Targets For The Release

EURUSD Daily

EUR/USD Plagued by Dovish ECB Bets- Will Draghi Buy More Time?

Chart - Created Using FXCM Marketscope 2.0

  • Failure to hold below the September high (1.1459) raises the risk for a further advance in EUR/USD, with the August high (1.1713) on the radar especially as the Relative Strength Index (RSI) retains the bullish formation from March.
  • DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-short EUR/USD since March 9, but the ratio remains off of recent extremes as it sits at -1.56 as 39% of traders are long.
  • Interim Resistance: 1.1760 (61.8% retracement) to 1.1810 (38.2% retracement)
  • Interim Support: Interim Support: 1.0790 (50% expansion) to 1.0800 (23.6% 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)

SEP 2015

09/03/2015 11:45 & 12:30 GMT

0.05%

0.05%

-102

-106

September 2015 European Central Bank Interest Rate Decision

EUR/USD Chart

Even though the European Central Bank (ECB) stuck to its current policy in September, the Governing Council cut its growth and inflation forecast on the back of the weakening outlook for global growth accompanied by weak energy prices. As a result, President Mario Draghi continued to endorse a dovish outlook for monetary policy, with the central bank keeping the door open to further embark on its easing cycle. The cautious tone dragged on the Euro, with EUR/USD sliding below the 1.1200 handle to close the day at 1.1121.

--- 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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