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EUR/USD Vulnerable to Further Losses on ECB QE Adjustment

EUR/USD Vulnerable to Further Losses on ECB QE Adjustment

David Song, Strategist

- European Central Bank (ECB) to Retain Zero-Interest Rate Policy (ZIRP).

- Will the Governing Council Adjust the Non-Standard Measures?

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

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

Even though the European Central Bank (ECB) is widely anticipated to preserve the zero-interest rate policy (ZIRP) in July, a series of adjustments to the non-standard measures may drag on the Euro and spark a near-term decline in EUR/USD should the central bank continue to push monetary policy into unchartered territory.

What’s Expected:

DailyFX Calendar

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Why Is This Event Important:With the U.K.’s imminent exit from the European Union (EU) clouding the economic outlook for the monetary union, ECB President Mario Draghi may take additional steps to insulate the euro-area, and the Governing Council may extend the duration as well as the scope of its quantitative easing (QE) program in an effort to encourage a stronger recovery.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Current Account s.a. (MAY)

--

30.8B

ZEW Survey – Expectations (JUL)

--

-14.7

Trade Balance s.a. (MAY)

25.0B

24.5B

The weakening outlook for global growth accompanied by the spillover effects from ‘Brexit’ may prompt the ECB to boosts its efficacy of its non-standard measures, and a meaningful adjust to the Public Sector Purchase Program (PSPP) may dampen the appeal of the single-currency as the central bank continues to embark on its easing cycle.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Retail Sales (MoM) (MAY)

0.4%

0.4%

Consumer Price Index Core (YoY) (JUN A)

0.8%

0.9%

Gross Domestic Product (YoY) (1Q F)

1.5%

1.7%

Nevertheless, sticky price growth paired with the pickup in private consumption may push the ECB to buy more time, and more of the same from President Draghi may generate a relief rebound in EUR/USD as market participants scale back bets for additional monetary support.

How To Trade This Event Risk(Video)

Bearish EUR Trade: ECB Adjusts Non-Standard Measures

  • 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 Preserves Current Policy

  • 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

EURUSD Daily

EUR/USD Vulnerable to Further Losses on ECB QE Adjustment
  • EUR/USD may continue to give back the advance from earlier this year as a head-and-shoulders formation appears to be playing out in the second-half of 2016, with a closing price below the Fibonacci overlap around 1.0960 (23.6% retracement) to 1.0970 (38.2% retracement) opening up the next downside target around 1.0910 (38.2% expansion).
  • 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)

JUN

2016

06/02/2016 11:45 & 12:30 GMT

0.00%

0.00%

+11

-38

June 2016 European Central Bank Interest Rate Decision

EUR/USD 5-Minute

EUR/USD Vulnerable to Further Losses on ECB QE Adjustment

The European Central Bank (ECB) largely endorsed a wait-and-see approach in June as the Governing Council retained the zero-interest rate policy (ZIRP) and raised its growth & inflation forecast for 2016, but President Mario Draghi reiterated interest rates may ‘remain at present or lower levels for an extended period of time’ amid the downside risks surrounding the economy. Moreover, the ECB argued borrowing-costs will stay low even after the central bank completes its quantitative easing (QE) program as the Governing Council struggles to achieve its one and only mandate for price-stability. The market reaction to the fresh batch of ECB rhetoric was short-lived, with EUR/USD slipping back below the 1.1200 handle to end the day at 1.1149.

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.

To be added to David's e-mail distribution list, please follow this link.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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