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EUR/USD to Extend Losses on ECB QE Adjustment/Extension

EUR/USD to Extend Losses on ECB QE Adjustment/Extension

2016-09-08 07:00:00
David Song, Strategist
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- European Central Bank (ECB) to Retain Zero-Interest Rate Policy (ZIRP).

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

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

Even though the European Central Bank (ECB) is expected to retain the zero-interest rate policy (ZIRP) in September, a string of adjustments to the non-standard measures may trigger a near-term selloff in EUR/USD should the central bank take additional steps to support the monetary union.

What’s Expected:

DailyFX Calendar

Click Here for the DailyFX Calendar

Why Is This Event Important:

The ECB may fine-tune its asset-purchases and extend the duration of its quantitative easing (QE) program as the Governing Council struggles to achieve its one and only mandate for price stability, but the euro-dollar stands at risk of facing a similar reaction to the March 10 policy meeting should President Mario Draghi and Co. endorse a wait-and-see approach for monetary policy.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Consumer Price Index Core (YoY) (AUG A)

0.9%

0.8%

Unemployment Rate (JUL)

10.0%

10.1%

M3 Money Supply (YoY) (JUL)

5.0%

4.8%

Signs of weak inflation accompanied by the slowdown in private-sector lending may encourage the ECB to push monetary policy further into unchartered territory, and an adjustment/extension of the non-standard measures may drag on the single-currency amid the ongoing expansion in the central bank’s balance sheet.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Gross Domestic Product s.a. (YoY) (2Q F)

1.6%

1.6%

Retail Sales (MoM) (JUL)

0.5%

1.1%

Industrial Production s.a. (JUN)

0.5%

0.6%

Nevertheless, the pickup in consumption paired with the positive developments coming out of the real economy may sway the Governing Council to buy more time, and more of the same from the central bank may spark a bullish reaction in the Euro as market participants scale back bets for additional monetary support.

How To Trade This Event Risk(Video)

Bearish EUR Trade: ECB Adjusts/Extends QE Program

  • 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 Sticks with Status Quo

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

Potential Price Targets For The Release

EURUSD Daily

EUR/USD Daily Chart
  • The near-term outlook for EUR/USD has become more constructive following the failed attempt to push below former resistance around 1.1110 (50% retracement), and the pair may continue to retrace the decline from the August high (1.1365) should the ECB stick to the sidelines.
  • 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)

JUL

2016

07/21/2016 11:45 & 12:30 GMT

0.00%

0.00%

+22

+7

July 2016 European Central Bank Interest Rate Decision

EUR/USD 5-Minute

EUR/USD Chart

The European Central Bank (ECB) stuck to the sidelines in July, with the Governing Council preserving the zero-interest rate policy (ZIRP), while the central bank remained committed to carrying out its monthly EUR 80B asset-purchase program until at least March 2017. At the same time, President Mario Draghi kept the door open to further embark on the easing cycle as ‘the risks to the euro area growth outlook remain tilted to the downside,’ and the ECB may continue to push monetary policy into unchartered territory as it struggles to achieve its one and only mandate for price stability. The Euro traded marginally higher following more of the same from the ECB, with EUR/USD coming off of the 1.1000 handle to end the day at 1.1024.

Get our top trading opportunities of 2016 HERE

Read More:

S&P 500: Unofficial End of Summer is Here, Price Movement Set to Pick Up

COT-Capitulation Low is Possible for Copper

Timing the Crude Oil Low

Technical Focus: Big Test in USD/ZAR

--- 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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