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EUR/USD Holds June Range- Outlook Hinges on ECB Forward Guidance

EUR/USD Holds June Range- Outlook Hinges on ECB Forward Guidance

2017-06-08 07:00:00
David Song, Currency Strategist
Share:

- ECB to Retain Zero-Interest Rate Policy (ZIRP), EUR 60B/Month QE Program.

- Will the ECB Extend the Asset-Purchase Program Beyond December?

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

DailyFX Calendar

The European Central Bank (ECB) interest rate decision may shake up the near-term outlook for EUR/USD as officials release their updated forecasts, and the single-currency may struggle to hold its ground amid reports the Governing Council will reduce its inflation forecast through 2019.

Why Is This Event Important:

Indeed, the ECB keep the door open to further embark on its easing-cycle as ‘measures of underlying inflation remain low and are expected to rise only gradually over the medium term,’ and a downward revision in the economic projections may undermine the near-term advance in EUR/USD should President Mario Draghi & Co. show a greater willingness to carry its asset-purchase program into 2018. However, unless the ECB decides to move the deadline, the ECB may have little choice but to alter the forward guidance for monetary policy as the quantitative easing (QE) program is set to expire in December. With that said, the resilience in EUR/USD may gather pace over the near-term if the Governing Council shows a greater willingness to further wind down its asset-purchases over the coming months.

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Impact that the ECB rate decision has had on EUR/USD during the previous meeting

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

APR

2017

04/27/2017 11:45 & 12:30 GMT

0.00%

0.00%

-70

-56

April 2017 European Central Bank (ECB) Interest Rate Decision

EUR/USD 5-Minute

EUR/USD Chart

As expected, the European Central Bank (ECB) continued to pursue the zero-interest rate policy (ZIRP) in April, while the ‘net asset purchases, at the new monthly pace of €60 billion, are intended to run until the end of December 2017, or beyond, if necessary’ as the Governing Council struggles to achieve its one and only mandate for price stability. The ECB went onto say that ‘a very substantial degree of monetary accommodation is still needed for underlying inflation pressures to build up and support headline inflation in the medium term,’ but the central bank appears to be adopting an improved outlook for the region as officials note the risks surrounding the euro-area are ‘moving towards a more balanced configuration.’ Nevertheless, the Euro struggled to hold its ground as the ECB stuck to the current script, with EUR/USD pulling back from a session high of 1.0933 to end the day at 1.0870.

How To Trade This Event Risk(Video)

Bearish EUR Trade: ECB Shows Greater Willingness to Carry QE Program Into December

  • Need a red, five-minute candle following the press conference to consider a short EUR/USD position.
  • If market reaction favors a bearish Euro position, sell EUR/USD with two separate lots.
  • Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward.
  • Move stop to breakeven on remaining position once initial target is met, set reasonable limit.

Bullish EUR Trade: Governing Council Prepares to Further Reduce Asset-Purchases

  • Need a green, five-minute EUR/USD candle to favor a long Euro position.
  • Carry out the same setup as the bearish Euro setup, just in the opposite direction.

Potential Price Targets For The Release

EUR/USD Daily

EUR/USD Daily Chart

Chart - Created Using Trading View

  • EUR/USD clings to the monthly opening range after failing to test the November-high (1.1299), with a break of the June-low (1.1202) raising the risk for a larger correction especially as the Relative Strength Index (RSI) appears to be pulling back ahead of overbought territory.
  • Failure to preserve the near-term range may open up the first downside hurdle around 1.1130 (61.8% retracement) to 1.1160 (38.2% expansion) followed by the Fibonacci overlap from 1.0980 (50% retracement) to 1.1020 (50% retracement).
  • Interim Resistance: 1.1330 (23.6% expansion) to 1.1340 (78.6% retracement)
  • Interim Support: 1.0780 (100% expansion) to 1.0830 (38.2% retracement)

Make Sure to Check Out the DailyFX Guides for Additional Trading Ideas!

EUR/USD Holds June Range- Outlook Hinges on ECB Forward Guidance

Retail trader data shows 22.7% of traders are net-long with the ratio of traders short to long at 3.41 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.06045; price has moved 6.1% higher since then. The number of traders net-long is 23.6% lower than yesterday and 18.2% lower from last week, while the number of traders net-short is 3.7% lower than yesterday and 2.8% lower from last week. For more information on retail sentiment, check out the new gauge developed by DailyFX based on trader positioning.

--- 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

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