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EUR/USD to Stage Larger Advance on Wait-and-See ECB

EUR/USD to Stage Larger Advance on Wait-and-See ECB

2016-06-02 07:00:00
David Song, Strategist
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- European Central Bank (ECB) to Preserve Current Policy in June.

- Will ECB President Keep the Door Open for More Non-Standard Measures?

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

The European Central Bank (ECB) interest rate decision may fail to generate a meaningful market reaction as the Governing Council is widely anticipated to retain the zero-interest rate policy (ZIRP) in June, but the fresh batch of central bank rhetoric may drag on EUR/USD should President Mario Draghi and Co. keep the door open to implement more non-standard measures.

What’s Expected:

DailyFX Calendar

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Why Is This Event Important:The Euro may struggle to hold its ground should the ECB show a greater willingness to further embark on its easing cycle, but the single-currency may catch a bid if the Governing Council largely endorses a wait-and-see approach all the while the monetary union returns to its historical role as a net-creditor to the rest of the world.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

M3 Money Supply (YoY) (APR)

5.0%

4.6%

Gross Domestic Product (YoY) (1Q P)

1.6%

1.5%

Industrial Production s.a. (MAR)

0.0%

-0.8%

The slowdown in private-sector lending accompanied by signs of a weaker-than-expected recovery may encourage the ECB to endorse a highlight dovish outlook for monetary policy, and a greater willingness to further support the euro-area may spur headwinds for the single-currency as market participants boost bets for more non-standard measures.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Consumer Price Index Core (YoY) (MAY A)

0.8%

0.8%

Current Account s.a. (MAR)

--

27.3B

Trade Balance s.a. (MAR)

22.0B

22.3B

Nevertheless, sticky price growth paired with the improvement in the Balance of Payment (BoP) may prompt the Governing Council to adopt an improved outlook for the monetary union, and a less-dovish policy statement may generate a bullish reaction in the Euro amid waning expectations for additional monetary support.

How To Trade This Event Risk(Video)

Bearish EUR Trade: ECB Shows Greater Willingness to Deploy More Easing

  • Need red, five-minute candle following the policy statement 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 Endorses Wait-and-See Approach

  • 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.

Potential Price Targets For The Release

EUR/USD Daily

EUR/USD Daily Chart
  • The bullish trend from December may reassert itself over the coming days as EUR/USD breaks out of the downward trend from May and appears to be carving a near-term bottom around 1.1090 (50% retracement) to 1.1110, while the Relative Strength Index (RSI) shows a similar dynamic, with the oscillator largely breaking out of the bearish formation.
  • Key Resistance: 1.1760 (61.8% retracement) to 1.1810 (38.2% retracement)
  • Key Support: Interim Support: 1.0380 (78.6% expansion) to 1.0410 (61.8% expansion)

Check out the short-term technical levels that matter for EUR/USD heading into the rate decision!

Avoid the pitfalls of trading by steering clear of classic mistakes. Review these principles in the "Traits of Successful Traders" series.

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)

APR

2016

04/21/2016 11:45 & 12:30 GMT

0.00%

0.00%

+69

-23

April 2016 European Central Bank Interest Rate Decision

EUR/USD Chart

The European Central Bank (ECB) retained the zero-interest rate policy (ZIRP) in April, with President Mario Draghi largely endorsing a dovish outlook for monetary policy as the central bank head argued rates may ‘remain at present or lower levels for an extended period of time.’ Moreover, the Governing Council warned inflation may turn ‘negative’ in coming months as ‘risks to the euro area growth outlook still remain tilted to the downside,’ and the central bank may implement more non-standard measures in 2016 as it struggles to achieve its one and only mandate for price stability. The initial advance in EURUSD was short-lived, with the pair slipping back below the 1.1350 region to end the day at 1.1286.

Get our top trading opportunities of 2016 HERE

Read More:

US DOLLAR Technical Analysis: Another Monthly Opening Range Worth Watching

Gold Prices in Free Fall- Shorts at Risk into NFP

EUR/GBP Breakdown Eyes Critical Support at 7520

GBP/USD Successful Re-Test of Former Resistance Line

--- Written by David Song, Currency Analyst

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

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