– European Central Bank (ECB) to Keep Rate at 0.50%; Forward-Guidance in Focus
– President Mario Draghi to Sounds More Dovish; Which Non-Standard Measure is Next?
Trading the News: European Central Bank Interest Rate Decision
The European Central Bank (ECB) is widely expected to adopt a more dovish tone for monetary policy as the Governing Council remains poised to implement more non-standard measures in 2014.
What’s Expected:
Time of release: 12/05/2013 12:45 GMT, 7:45 EST
Primary Pair Impact: EURUSD
Expected: 0.25%
Previous: 0.25%
DailyFX Forecast: 0.25%
Why Is This Event Important:
Given the recent headlines surrounding the ECB, there may be little in terms of new surprises as the Governing Council looks at a range of policy tools (Negative Deposit Rates, Long-Term Refinancing Operations, and Quantitative Easing), but the Euro may struggle to hold its ground following the policy meeting should President Mario Draghi layout a more detailed schedule for its easing cycle.
Expectations: Bearish Argument/Scenario
Release
Expected
Actual
Euro-Zone Retail Sales (MoM) (OCT)
0.0%
-0.2%
Euro-Zone Consumer Confidence (NOV A)
-14.0
-15.4
Euro-Zone Unemployment Rate (OCT)
12.2%
12.1%
The ECB may lay out a more detailed timeline for its easing cycle as the underlying weakness in the real economy heightens the threat for deflation, and a material shift in the policy outlook may spark a key reversal in the EURUSD as the pair appears to be carving a head-and-shoulders top.
Risk: Bullish Argument/Scenario
Release
Expected
Actual
Euro-Zone Consumer Price Index Estimate (YoY) (NOV)
0.8%
0.9%
Euro-Zone Economic Confidence (NOV)
98.0
98.5
Euro-Zone Gross Domestic Product (3Q P)
0.1%
0.1%
However, the ECB may not sound so dovish this time around amid the small uptick in price growth, and the Euro may continue to track higher over the near-term as it retains the bullish trend carried over from November.
How To Trade This Event Risk(Video)
*Trading the ECB interest rate decision may not be as clear cut as some of our other trade setups as the press conference with President Draghi ends with a Q&A session
Join DailyFX on Demand for Full Coverage of the ECB Meeting
Bearish EUR Trade: ECB Lays Out Detailed Easing Schedule
Need to see red, five-minute candle following the decision/statement to consider a short Euro trade
If market reaction favors a short trade, sell EURUSD 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: Governing Council Adopts More Neutral Tone
Need green, five-minute candle to favor a long EURUSD trade
Implement same strategy as the bearish euro trade, just in the opposite direction
Potential Price Targets For The Rate Decision
EURUSD Daily
Chart – Created Using FXCM Marketscope 2.0
Continues to Threaten Trendline Support; Head-and-Shoulders Formation?
Bearish Break in Relative Strength Index to Provide Confirmation/Conviction
Interim Resistance: 1.3650-60 (78.6% expansion)
Interim Support: 1.3290 (50.% retracement) to 1.3300 Pivot
Impact that the European Central Bank Interest Rate Decision has had on EUR during the last meeting
Period
Data Released
Estimate
Actual
Pips Change
(1 Hour post event )
Pips Change
(End of Day post event)
NOV 2013
11/07/2013 12:45 GMT
0.50%
0.25%
-180
-89
November 2013 European Central Bank Interest Rate Decision
In a surprise move, the European Central Bank cut its key benchmark interest rate last month by 25bps from 0.50% to 0.25%. The announcement was slightly delayed and this led to immediate selling of Euro crosses. When the release finally hit the wires, the Euro continued to come under pressure and was down almost 200 pips against the greenback a little under an hour after the announcement. ECB President Mario Draghi did his best to talk down the Euro further by making it clear that the central bank would consider negative deposit facility rates in an attempt to spur lending by Eurozone banks. After this rate cut, it looks increasingly more likely that such action would not be taken unless CPI prints start to echo signs of coming deflation.
— 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.
Trade Alongsidethe DailyFX Team on DailyFX on Demand
Looking to use the DailyFX Trade Signals LIVE? Check out Mirror Trader.
New to FX? Watch this Video
Join us to discuss the outlook for the major currencies on the DailyFXForums
Source: Daily fx
