TheNews

- European Central Bank (ECB) to Announce Further Details Surrounding Non-Standard Measures.
- Will ECB President Mario Draghi Talk Down the Euro?

Trading the News: European Central Bank (ECB) Interest Rate Decision

Further details surrounding the European Central Bank’s (ECB) asset-back securities (ABS) and covered-bond purchase program may heighten the bearish sentiment surrounding the Euro, but we may see a relief rally in the EUR/USD should the Governing Council use the interest rate decision as an attempt to buy more time.

What’s Expected:



Why Is This Event Important:

The ECB may refrain from addressing the unanswered questions surrounding the non-standard measures as President Mario Draghi waits for the results of the second targeted long-term refinancing operation (T-LTRO), and the EUR/USD may face a near-term correction should the fresh developments dampen bets for more easing.

Expectations: Bearish Argument/Scenario

Release	Expected	Actual
Consumer Price Index Core (YoY) (SEP A)	0.9%	0.7%
Markit Purchasing Manager Index Composite (SEP P)	52.5	52.3
Gross Domestic Product (2Q A)	0.1%	0.0%

The ECB may sound increasingly dovish amid the growth threat for deflation, and the EUR/USD may face a further decline should the council keep the door open for more non-standard measures, which may quantitative easing (QE).

Risk: Bullish Argument/Scenario

Release	Expected	Actual
Employment (QoQ) (2Q)	--	0.2%
Industrial Production s.a. (MoM) (JUL)	0.7%	1.0%
Household Consumption (QoQ) (2Q)	0.4%	-0.3%

Nevertheless, the ECB may scale back its dovish outlook amid the improvements in the monetary union, and the Euro may face a near-term bounce should the central bank adopt a wait-and-see approach.

How To Trade This Event Risk

Bearish EUR Trade: ECB Keeps Door Open for More Non-Standard Measures

• Need red, five-minute candle following the updated foreward-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: Governing Council Tries 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

Potential Price Targets For The Release
EUR/USD Daily

• DailyFX Speculative Sentiment Index (SSI) shows retail crowd remains net-short the dollar, with the EUR/USD ratio current sitting at +1.34.
• Interim Resistance: 1.3010 (50.0% retracement) to 1.3020 (23.6% expansion)
• Interim Support: 1.2450 (78.6% retracement) to 1.2500 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)
SEP 2014	09/04/2014 11:45 GMT	0.15%	0.05%	-107	-197

The European Central Bank unexpectedly cut the benchmark interest rate to fresh record low of 0.05% as the downside risks surrounding the growth outlook raises the threat for deflation. The Governing Council also laid out an asset-backed securities (ABS) purchasing plan to further boost private-sector lending, with details to be disclosed at the October 2 policy meeting. As a result, it seems as though the Euro will face additional headwinds over the near to medium-term as the ECB continues to push monetary policy into unchartered territory. The EUR/USD plummeted following the new wave of monetary support, with the pair dropping over 100 pips during the North American trade, but we saw a minor bounce going in the close as the euro-dollar ended the day at 1.2932.

--- Written by David Song, Currency Analyst and Shuyang Ren


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