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

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by , 10-20-2016 at 10:17 AM (726 Views)
      
   
Trading the News: European Central Bank (ECB) Interest Rate Decision

Even though the European Central Bank (ECB) is widely anticipated to retain its current policy in October, the EUR/USD may face a sharp move should President Mario Draghi & Co. take additional steps to further support the monetary union.

Whatís Expected:

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Why Is This Event Important:

After cutting the growth forecast in September, the Governing Council may push out the deadline for its quantitative easing (QE) program and adjust the guidelines of its non-standard measures in an effort to encourage a stronger recovery. However, more of the same from the ECB may trigger a bullish reaction in the single-currency should the central bank stick to the March 2017 deadline for its asset-purchases.

How To Trade This Event Risk
Bearish EUR Trade: Governing Council Extends/Adjusts QE Program

  • 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: ECB Preserves Current Policy, Endorses Wait-and-See Approach

  • 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

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  • Failure to preserve the upward trend from December raises the risk for a further decline in EUR/USD, but the lack of momentum to test the July low (1.0952) may foster a near-term rebound in the exchange rate especially as the Relative Strength Index (RSI) struggles to break below 30 and push into oversold territory.
  • Interim Resistance: 1.1420 (23.6% retracement) to 1.1428 (June high)
  • Interim Support: 1.0912 (June low) to 1.0940 (61.8% retracement)


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