– European Central Bank (ECB) to Retain Current Policy Ahead of Next T-LTRO in December.
– Will ECB Expand the Scope & Attractiveness of Non-Standard Measures?
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Trading the News: European Central Bank (ECB) Interest Rate Decision
The EUR/USD may face another selloff in the days ahead should the European Central Bank (ECB) adopt a more dovish tone and offer additional monetary support to prop up the ailing economy.
What’s Expected:
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Why Is This Event Important:
The ECB may take a more aggressive approach in expanding its balance-sheet amid the growing threat for deflation, but we may see a relief rally in the EUR/USD should the Governing Council merely make an attempt to buy more time.
Expectations: Bearish Argument/Scenario
Release
Expected
Actual
Retail Sales (MoM) (SEP)
-0.8%
-1.3%
Consumer Price Index Core (YoY) (OCT A)
0.8%
0.7%
Gross Domestic Product (2Q P)
0.0%
0.0%
The ECB may expand the scope of its asset-purchase program to include a broader range of assets amid the weakening outlook for growth and inflation, and the bearish sentiment surrounding the EUR/USD looks poised to gather pace over the medium-term as the Governing Council further embarks on its easing cycle.
Risk: Bullish Argument/Scenario
Release
Expected
Actual
Economic Confidence (OCT)
99.7
100.7
Construction Output (MoM) (AUG)
—
1.5%
Trade Balance s.a. (AUG)
13.3B
15.8B
Nevertheless, ECB President Mario Draghi may promote a wait-and-see approach as the central bank continues to assess the impact of the non-standard measures, and the Euro may face a more meaningful rebound in the days ahead if we see more of the same from the Governing Council’s October 2 meeting.
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How To Trade This Event Risk(Video)
Bearish EUR Trade: Governing Council Shows Greater Willingness to Implement More Easing
Need red, five-minute candle following the updated forward-guidance to consider a short EUR/USD trade
If market reaction favors a short Euro trade, sell EUR/USD with two separate position
Set stop at the near-by swing high/reasonable distance from cost; 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: ECB Attempts to Buy More Time
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
Read More:
Price & Time: Waiting On USD/CHF
COT: Yen Speculators Caught Off Guard
Potential Price Targets For The Release
Chart – Created Using FXCM Marketscope 2.0
Despite the range-bound price action in EUR/USD, the long-term outlook remains bearish as the RSI retains the downward momentum carried over from the previous year.
Interim Resistance: 1.2580 (78.6% retracement) to 1.2620 (50.0% expansion)
Interim Support: 1.2450 (78.6% retracement) to 1.2470 (78.6% expansion)
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)
OCT 2014
10/02/2014 11:45 GMT
0.05%
0.05%
+5
+20
October 2014 European Central Bank Interest Rate Decision
The European Central Bank (ECB) kept the benchmark interest rate unchanged at the historical low of 0.05%, while unveiling the details of the asset purchase programme. The ECB would start with covered-bond purchases in late October, which will be followed by the asset-back securities (ABS) programme in December, with the non-standard measure largely aimed at mitigating the downside risk for growth and inflation. However, the ECB may sound increasingly dovish over the remainder of the year as the monetary union faces a growing risk of slipping back into recession. Nevertheless, the Euro gained following the initial announcement, with EUR/USD climbing above the 1.2675 region, but Euro struggled to hold its ground throughout the North American trade as the pair ended the day at 1.2654.
— Written by David Song, Currency Analyst and Shuyang Ren
To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.
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Source: Daily fx