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Euro Traders Bet on Weakness Before ECB Rate Decision

Euro Traders Bet on Weakness Before ECB Rate Decision

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • Traders Bet Euro Weakness Ahead of ECB Policy Monetary Announcement
  • Deposit Rate Cut Hint or Fully Neutral Posture to Trigger Greatest Volatility
  • See Economic Releases Directly on Your Charts with the DailyFX News App

All eyes are on the monetary policy announcement from the European Central Bank. Economists expect no changes this time around, but markets seem positioned for a dovish outcome, perhaps via rhetoric setting the stage for stimulus expansion in December.

Options positioning has shown an increasingly negative skew since the final set of September’s Eurozone CPI figures confirmed price growth dipped back into deflationary territory. The premium traders are willing to pay for the right to sell the Euro versus an equivalent right to buy has jumped to 0.63, the highest in over three months.

That suggests investors expect the single currency to head lower, which seemingly foreshadows a dovish turn in the ECB’s posture. A steady downward drift in borrowing costs implied by Eonia futures reinforces the idea that markets are setting up for stimulus expansion.

Expanding the range of QE-eligible assets and/or extending the expiration date of the current program beyond September 2016 are probably priced in already. A nod toward such a move in ECB President Draghi’s post-announcement press conference punish the Euro in the near term, but lasting follow-through might prove challenging.

Lasting downside momentum is likely to follow if Draghi hints at a possible reduction in the deposit rate having previously suggested that the current -0.2 setting represents a floor. Alternatively, a neutral posture would clash with market pricing and send investors scrambling to reposition, pushing the common unit swiftly higher.

Losing Money Trading Forex? This Might Be Why.

Asia Session

GMT

CCY

EVENT

ACT

EXP

PREV

21:00

NZD

ANZ Job Advertisements (MoM) (SEP)

2.1%

-

-1.5%

0:30

AUD

NAB Business Confidence (3Q)

0

-

4

1:45

CNY

MNI Business Confidence (OCT)

55.6

-

51.3

European Session

GMT

CCY

EVENT

EXP/ACT

PREV

IMPACT

6:45

EUR

Business Survey Overall Demand (OCT)

5 (A)

3

Low

6:45

EUR

Business Confidence (OCT)

101 (A)

100

Low

6:45

EUR

Manufacturing Confidence (OCT)

103 (A)

104

Low

6:45

EUR

Production Outlook Indicator (OCT)

2 (A)

5

Low

6:45

EUR

Own-Company Production Outlook (OCT)

13 (A)

14

Low

8:20

GBP

BOE's Cunliffe Speaks at Event in London

-

-

Medium

8:30

GBP

Retail Sales Ex Auto Fuel (MoM) (SEP)

0.4%

0.1%

Medium

8:30

GBP

Retail Sales Ex Auto Fuel (YoY) (SEP)

4.7%

3.5%

Medium

8:30

GBP

Retail Sales Inc Auto Fuel (MoM) (SEP)

0.4%

0.2%

Medium

8:30

GBP

Retail Sales Inc Auto Fuel (YoY) (SEP)

4.8%

3.7%

Medium

11:45

EUR

ECB Main Refinancing Rate

0.05%

0.05%

High

11:45

EUR

ECB Deposit Facility Rate

-0.20%

-0.20%

High

11:45

EUR

ECB Marginal Lending Facility

0.30%

0.30%

High

12:30

EUR

ECB Pres. Draghi Holds Press Conference

-

-

High

Critical Levels

CCY

Supp 3

Supp 2

Supp 1

Pivot Point

Res 1

Res 2

Res 3

EURUSD

1.1262

1.1306

1.1323

1.1350

1.1367

1.1394

1.1438

GBPUSD

1.5308

1.5372

1.5394

1.5436

1.5458

1.5500

1.5564

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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

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