– European Central Bank (ECB) Largely Expected to Maintain Current Policy.
– Will Governing Council Show Greater Willingness for Quantitative Easing (QE)?
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Trading the News: European Central Bank (ECB) Interest Rate Decision
Despite expectations of seeing the European Central Bank (ECB) further embark on its easing cycle, the EUR/USD may face a short-squeeze should the Governing Council retain its current approach for monetary policy.
What’s Expected:
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Why Is This Event Important:Indeed, there’s speculation that the ECB will cut interest rates further or even announce a more detailed asset-backed security (ABS) purchasing program amid the ongoing weakness in the monetary union, but the Governing Council may stick to the sidelines as President Mario Draghi continues to see a moderate recovery in the euro-area.
Expectations: Bullish Argument/Scenario
Release
Expected
Actual
Consumer Price Index Core (YoY) (AUG A)
0.8%
0.9%
Unemployment Rate (AUG)
11.5%
11.5%
Business Climate Indicator (AUG)
0.10
0.16
The stickiness in core inflation paired with lower unemployment may encourage the ECB to retain its current policy throughout 2014, and the EUR/USD may finally fill-in the gap from the end of August should the Governing Council make an attempt to buy more time.
Risk: Bearish Argument/Scenario
Release
Expected
Actual
Retail Sales (MoM) (JUL)
-0.3%
-0.4%
Gross Domestic Product s.a. (QoQ) (2Q A)
0.1%
0.0%
Industrial Production s.a. (JUN)
0.4%
-0.3%
Nevertheless, the ECB may implement additional monetary support amid the persistent weakness in the real economy, and the EUR/USD may continue to press fresh 2014 lows should the central bank loosen policy further.
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How To Trade This Event Risk(Video)
Bullish EUR Trade: ECB Refrains From Implementing Additional Monetary Support
Need green, five-minute candle following the policy statement to consider a long EUR/USD position
If market reaction favors a long trade, buy EUR/USD with two separate position
Set stop at the near-by swing low/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
Bearish EUR Trade: Governing Council Favors Further Non-Standard Measures
Need red, five-minute candle to favor a short EUR/USD trade
Implement same strategy as the bullish euro trade, just in the opposite direction
Read More:
COT: Euro and Yen Positioning Near Record Levels
Price & Time: The “Most Loved Rally in History”
Potential Price Targets For The Release
Chart – Created Using FXCM Marketscope 2.0
Remains at Risk for a Further Decline as the RSI Continues to Hold in Oversold Territory
Interim Resistance: 1.3350 (61.8% expansion) to 1.3370 (50.0% retracement)
Interim Support: 1.3090 (38.2% expansion) to 1.3100 Pivot
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)
AUG
08/07/2014 11:45 GMT
0.15%
0.15%
+2
-19
August 2014 European Central Bank Interest Rate Decision
The European Central Bank kept the benchmark interest rate unchanged at 0.15% even as it saw a moderate and uneven recovery in the euro-area. However, ECB President Mario Draghi went onto say that the central bank had intensified the preparatory work for outright purchase of asset-backed securities (ABS), which suggests the ECB may embark on quantitative easing (QE) sooner rather than later. Despite the limited reaction, the EUR/USD largely struggled to hold its ground during the North American trade, with the pair ending the day at 1.3355.
— 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
