TheNews

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

Despite the ongoing easing cycle in the euro-area, the fresh rhetoric coming out of the European Central Bank (ECB) may spur a similar market reaction to the December interest rate decision as the Governing Council takes a more cautious approach in pushing monetary policy into uncharted territory.

What’s Expected:



Why Is This Event Important:

The deviating paths for monetary policy continues to encourage a long-term bearish outlook for EUR/USD especially as the Federal Reserve pledges to implement higher borrowing-costs in 2016 but, the single-currency may face another short squeeze should President Mario Draghi endorse a wait-and-see approach for the first-half of 2016.

Nevertheless, bright signs coming out of the real economy may push the ECB to the sidelines, and the Euro may face a similar reaction to the December rate decision should the central bank scale back its willingness to implement more non-standard measures.

How To Trade This Event Risk

Bearish EUR Trade: ECB Boosts Bets for More Non-Standard Measures

• Need red, five-minute candle following the policy statement to consider a short EUR/USD trade.
• If market reaction favors a bearish Euro trade, sell EUR/USD with two separate position.
• Set stop at the near-by swing high/reasonable distance from cost; need 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 Attempts to Buy 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
EURUSD Daily

• Even though the long-term outlook remains tilted to the downside, EUR/USD stands at risk of facing choppy prices ahead of the ECB rate decision as it remains stuck in a narrowing range; single-currency stands at risk for another short-squeeze should the central bank talk down bets for more monetary easing.
• Interim Resistance: 1.1052 (November high) to 1.1090 (50% retracement)
• Interim Support: Interim Support: 1.0380 (78.6% expansion) to 1.0410 (61.8% expansion)

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