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Euro Traders Bet on Weakness Before ECB Rate Decision

Euro Traders Bet on Weakness Before ECB Rate Decision

Ilya Spivak,

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

21:00NZDANZ Job Advertisements (MoM) (SEP)2.1%--1.5%
0:30AUDNAB Business Confidence (3Q)0-4
1:45CNYMNI Business Confidence (OCT)55.6-51.3

European Session

6:45EURBusiness Survey Overall Demand (OCT)5 (A)3Low
6:45EURBusiness Confidence (OCT)101 (A)100Low
6:45EURManufacturing Confidence (OCT)103 (A)104Low
6:45EURProduction Outlook Indicator (OCT)2 (A)5Low
6:45EUROwn-Company Production Outlook (OCT)13 (A)14Low
8:20GBPBOE's Cunliffe Speaks at Event in London --Medium
8:30GBPRetail Sales Ex Auto Fuel (MoM) (SEP)0.4%0.1%Medium
8:30GBPRetail Sales Ex Auto Fuel (YoY) (SEP)4.7%3.5%Medium
8:30GBPRetail Sales Inc Auto Fuel (MoM) (SEP)0.4%0.2%Medium
8:30GBPRetail Sales Inc Auto Fuel (YoY) (SEP)4.8%3.7%Medium
11:45EURECB Main Refinancing Rate 0.05%0.05%High
11:45EURECB Deposit Facility Rate -0.20%-0.20%High
11:45EURECB Marginal Lending Facility 0.30%0.30%High
12:30EURECB Pres. Draghi Holds Press Conference --High

Critical Levels

CCYSupp 3Supp 2Supp 1Pivot PointRes 1Res 2Res 3

--- Written by Ilya Spivak, Currency Strategist for

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