Trading News Events

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.

What’s Expected:

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

• 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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Trading the News: Canada Consumer Price Index (CPI)

A sharp rebound in Canada’s Consumer Price Index (CPI) may heighten the appeal of the Canadian dollar, but another downtick in the core rate of inflation may fuel the near-term rebound in USD/CAD as puts increased pressure on the Bank of Canada (BoC) to further support the real economy.

What’s Expected:

Why Is This Event Important:

The BoC may continue to ‘actively’ discuss more stimulus for the real economy amid the ongoing adjustment to the oil price shock, and the central bank may reestablish its easing cycle over the coming months as Governor Stephen Poloz and Co. now anticipate the economy to reach full-capacity ‘materially later than the Bank had anticipated in July.’ In turn, USD/CAD may continue to retrace the decline from earlier this year, but the BoC may preserve its current policy throughout the remainder of 2016 as the central bank argues the risks surrounding the inflation outlook are ‘roughly balanced.’

How To Trade This Event Risk
Bullish CAD Trade: Canada CPI Rebounds in September

• Need to see red, five-minute candle following the release to consider a short trade on USD/CAD.
• If market reaction favors a long loonie trade, sell USD/CAD with two separate position.
• Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward.
• Move stop to entry on remaining position once initial target is hit; set reasonable limit.

Bearish CAD Trade: Headline & Core Inflation Fall Short of Market Forecast

• Need green, five-minute candle to favor a long USD/CAD trade.
• Implement same setup as the bullish Canadian dollar trade, just in the opposite direction.

Potential Price Targets For The Release
USD/CAD Daily

• USD/CAD may work its way back towards the top of the recent range as it snaps back from a fresh monthly low (1.3006), with the pair marking a failed run at the Fibonacci overlap around 1.2980 (61.8% retracement) to 1.2990 (23.6% retracement); will keep a close eye on the Relative Strength Index (RSI) as it retains the downward trend carried over from the summer months, with a break of the bearish formation raising the risk for a broader advance in the exchange rate.
• Interim Resistance: 1.3300 (50% retracement) to 1.3310 (38.2% retracement)
• Interim Support: 1.2764 (August low) to 1.2770 (38.2% expansion)

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Trading the News: U.K. Gross Domestic Product (GDP)

GBP/USD may stage a larger rebound over the next 24-hours of trade as the advance Gross Domestic Product (GDP) report is expected to show the U.K. economy expanding another annualized 2.1% in the third-quarter of 2016, and signs of better-than-expected growth may encourage the Bank of England (BoE) to retain the current policy throughout the remainder of the year as the central bank sees growing risk of overshooting the 2% target for inflation.

What’s Expected:

Why Is This Event Important:

The BoE may continue to embark on its easing-cycle over the coming months as ‘a majority of members expect to support a further cut in Bank Rate to its effective lower bound,’ but Governor Mark Carney and Co. may largely endorse a wait-and-see approach going into 2017 as central bank officials warn the next quarterly inflation due out on November 3 will reflect the sharp decline in the exchange rate. Even though the threat of a ‘hard Brexit’ instills a long-term bearish outlook for the British Pound, GBP/USD may face a larger correction over the days ahead especially as the BoE appears to be in no rush to implement lower borrowing-costs.

How To Trade This Event Risk
Bullish GBP Trade: U.K. GDP Expands Annualized 2.1% or Greater

• Need a green, five-minute candle following the report to favor a long GBP/USD trade.
• If market reaction favors a long sterling trade, buy GBP/USD with two separate position.
• Set stop at the near-by swing low/reasonable distance from entry; look for at least 1:1 risk-to-reward.
• Move stop to entry on remaining position once initial target is hit, set reasonable limit.

Bearish GBP Trade: 3Q Growth Report Falls Short of Market Expectations

• Need a red, five-minute candle to favor a short GBP/USD trade.
• Implement same setup as the bullish British Pound trade, just in the opposite direction.

Potential Price Targets For The Release
GBP/USD Daily

• The longer-term outlook continues to favor the downside targets for GBP/USD as it preserves the bearish trend carried over from September, but the lack of momentum to close below 1.2100 (61.8% expansion) may foster a larger rebound in the exchange rate as the Relative Strength Index (RSI) climbs out of oversold territory (above 30) and breaks out of the downward trend; first topside hurdle comes in around 1.2360 (50% retracement) followed by 1.2460 (61.8% expansion).
• Interim Resistance: 1.2920 (100% expansion) to 1.2950 (23.6% expansion)
• Interim Support: 1.1905 (2016-low) and 1.2100 (61.8% expansion)

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Trading the News: U.S. Gross Domestic Product (GDP)

The U.S. economy is projected to grow an annualized 2.5% in the third-quarter of 2016, and a marked pickup in the Gross Domestic Product (GDP) may boost the appeal of the greenback and trigger a near-term decline in EUR/USD as it fuels speculation for an imminent Fed rate-hike.

What’s Expected:

Why Is This Event Important:

It seems as though the Federal Open Market Committee (FOMC) is following a similar path to 2015 as a growing number of central bank officials endorse a December rate-hike, but the majority may continue to endorse a ‘gradual’ path in normalizing monetary policy as ‘survey-based measures of longer-run inflation expectations were little changed, on balance, while market-based measures of inflation compensation remained low.’ With that said, a marked slowdown in the core Personal Consumption Expenditure (PCE), the Fed’s preferred gauge for inflation, may spark a bearish reaction in the greenback as it drags on interest-rate expectations.

How To Trade This Event Risk
Bullish USD Trade: U.S. Expands Annualized 2.5% or Greater

• Need red, five-minute candle following the release to favor a short position on EUR/USD.
• If market reaction favors a bullish dollar trade, sell EUR/USD with two separate position.
• Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward.
• Move stop to entry on remaining position once initial target is hit; set reasonable limit.

Bearish USD Trade: GDP Report Fails to Meet Market Forecast

• Need a green, five-minute candle to favor a long EUR/USD trade.
• Implement same strategy as the bullish dollar trade, just in reverse.

Potential Price Targets For The Release
EUR/USD Daily

• EUR/USD appears to be establishing a bear-flag formation as the broader outlook remains tilted to the downside, but a move back above 1.0940 (61.8% retracement) to 1.0970 (38.2% retracement) may spur a test of trendline resistance especially as the Relative Strength Index (RSI) comes off of oversold territory.
• Interim Resistance: 1.1090 (50% retracement) to 1.1110 (50% retracement)
• Interim Support: 1.0780 (100% expansion) to 1.0800 (23.6% retracement)

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Trading the News: U.S. Non-Farm Payrolls (NFP)

A 175K expansion in U.S. Non-Farm Payrolls (NFP) accompanied by a downtick in the jobless-rate may heighten the appeal of the greenback and spark a near-term pullback in EUR/USD should the report fuel speculation for an imminent Fed rate-hike.

What’s Expected:

Why Is This Event Important:

Despite the 8 to 2 split within the Federal Open Market Committee (FOMC), Chair Janet Yellen and Co. appear to be following a similar path to 2015 as officials warn ‘that the case for an increase in the federal funds rate has continued to strengthen,’ and the dollar may outperform its major counterparts over the remainder of the year as the central bank takes a more collective approach in preparing U.S. households and businesses for higher borrowing-costs. However, a further reduction in the Fed’s long-run interest rate forecast may curtail the bullish outlook for the greenback as the committee argues ‘market-based measures of inflation compensation have moved up but remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months,’ and the permanent-voting members may continue to endorse a ‘gradual’ path in normalizing monetary policy as the central bank remains ‘data-dependent.’

How To Trade This Event Risk
Bullish USD Trade: Employment Climbs 175K or Greater, Jobless Rate Narrows to 4.9%

• Need red, five-minute candle following the print to consider a short EUR/USD position.
• If market reaction favors a bullish dollar trade, sell EUR/USD with two separate position.
• Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward.
• Move stop to entry on remaining position once initial target is hit; set reasonable limit.

Bearish USD Trade: U.S. NFP Report Falls Short of Market Forecast

• Need green, five-minute candle to favor a long EUR/USD trade.
• Implement same setup as the bullish dollar trade, just in the opposite direction.

Potential Price Targets For The Release
EUR/USD Daily

• The recent series of higher highs & lows in EUR/USD may spur a test of trendline resistance especially as the Relative Strength Index (RSI) breaks out of the bearish formation, with a break/close above the Fibonacci overlap around 1.1090 (50% retracement) to 1.1110 (50% retracement) to open up the next topside area of interest around 1.1220 (61.8% retracement) to 1.1250 (61.8% retracement).
• Interim Resistance: 1.1420 (23.6% retracement) to 1.1428 (June high)
• Interim Support: 1.0780 (100% expansion) to 1.0800 (23.6% retracement)

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Trading the News: U. of Michigan Confidence Survey

A rebound in the U. of Michigan Confidence survey may spark a bullish reaction in the U.S. dollar and fuel the recent selloff in EUR/USD should the data print highlight an improved outlook for growth and inflation.

What’s Expected:

Why Is This Event Important:

The Federal Open Market Committee (FOMC) looks poised to deliver a December rate-hike as ‘the Committee judges that the case for an increase in the federal funds rate has continued to strengthen,’ and Chair Janet Yellen and Co. may continue to normalize monetary policy in the year ahead as the central bank sees a ‘moderate’ recovery going forward. However, another unexpected decline in household sentiment may dampen the appeal of the greenback and drag on interest-rate expectations as central bank officials continue to warn ‘market-based measures of inflation compensation have moved up but remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.’

How To Trade This Event Risk
Bullish USD Trade: U. of Michigan Confidence Survey Climbs to 87.9 or Greater

• Need red, five-minute candle following the report to consider a short EUR/USD trade.
• If market reaction favors a bullish dollar 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.

Bearish USD Trade: U.S. Household Sentiment Continues to Deteriorate

• Need green, five-minute candle to favor a long EUR/USD trade.
• Implement same strategy as the bullish dollar trade, just in reverse.

Potential Price Targets For The Release
EURUSD Daily

• EUR/USD stands at risk for further losses as it fails to preserve the ascending channel formation carried over from the previous month, with a break of the October low (1.0851) raising the risk for a more meaningful run at the March low (1.0822) especially as the pair preserves the bearish trend carried over from earlier this year.
• Interim Resistance: 1.1300 (23.6% retracement) to 1.1320 (38.2% expansion)
• Interim Support: 1.0780 (100% expansion) to 1.0800 (23.6% retracement)

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Trading the News: U.K. Jobless Claims Change

GBP/USD may continue to carve a near-term series of lower highs & lows as U.K. Jobless Claims are projected to increase another 2.0K in October, but a marked pickup in household earnings may heighten the appeal of the British Pound as the Bank of England (BoE) warns ‘monetary policy can respond, in either direction.’

What’s Expected:

Why Is This Event Important:

It seems as though the Monetary Policy Committee (MPC) is gradually move away from its easing cycle as Governor Mark Carney warns ‘inflation is going up. A pass through of a 20% fall in sterling is going to come and will build towards the end of this year and into 2017,’ and the sterling may stage a larger recovery over the near-term as BoE officials argue that ‘there are limits to the extent to which above-target inflation can be tolerated,’ Nevertheless, the MPC appears to be in no rush to remove the highly accommodative stance as the outlook for the U.K. economy remains clouded with high uncertainty, and the British Pound remains at risk of facing headwinds over the coming months as the region prepares to depart from the European Union (EU).

How To Trade This Event Risk
Bearish GBP Trade: Job & Wage Growth Falls Short of Market Forecasts

• Need red, five-minute candle following the report to favor a short GBP/USD trade.
• If market reaction favors a long sterling trade, buy GBP/USD with two separate position.
• Set stop at the near-by swing low/reasonable distance from entry; look for at least 1:1 risk-to-reward.
• Move stop to entry on remaining position once initial target is hit, set reasonable limit.

Bullish GBP Trade: U.K. Employment Report Beats Expectations

• Need green, five-minute candle to favor a long GBP/USD position.
• Implement same setup as the bearish British Pound trade, just in reverse.

Potential Price Targets For The Release
GBP/USD Daily

• Will keep a close eye on the recent series of lower highs & lows in GBP/USD following the failed attempt to push above the Fibonacci overlap around 1.2630 (38.2% expansion) to 1.2680 (50% retracement), with the pair at risk of testing channel support especially as the Relative Strength Index (RSI) preserves the bearish formation carried over from May.
• Interim Resistance: 1.2920 (100% expansion) to 1.2950 (23.6% expansion)
• Interim Support: 1.1905 (2016-low) and 1.2100 (61.8% expansion)

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Trading the News: Canada Consumer Price Index (CPI)

Another uptick in Canada’s Consumer Price Index (CPI) along with stickiness in the core rate of inflation may foster a larger pullback in USD/CAD as the Bank of Canada (BoC) ‘expects total CPI inflation to be close to 2 percent from early 2017 onwards.’

What’s Expected:

Why Is This Event Important:

Even though the BoC ‘actively’ discussed more stimulus for the real economy, it seems as though Governor Stephen Poloz and Co. will continue to endorse a wait-and-see approach for monetary policy as ‘Canada’s economy is still expected to grow at a rate above potential starting in the second half of 2016.’ The risk of overshooting the 2% target for inflation may push the BoC to gradually move away from its easing-cycle, but signs of subdued price growth may encourage the central bank to further support the real economy as the region is anticipated to return to ‘full capacity around mid-2018, materially later than the Bank had anticipated in July.’

How To Trade This Event Risk

Bullish CAD Trade: Canada CPI Picks Up for Second Consecutive Month

• Need to see red, five-minute candle following the release to consider a short trade on USD/CAD.
• If market reaction favors a long loonie trade, sell USD/CAD with two separate position.
• Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward.
• Move stop to entry on remaining position once initial target is hit; set reasonable limit.

Bearish CAD Trade: Inflation Report Falls Short of Market Expectations

• Need green, five-minute candle to favor a long USD/CAD trade.
• Implement same setup as the bullish Canadian dollar trade, just in the opposite direction.

Potential Price Targets For The Release
USD/CAD Daily

• Broader outlook for USD/CAD remains constructive as the pair preserves the upward trending channel carried over from earlier this year, with the Relative Strength Index (RSI) highlighting a similar dynamic, but the recent series of lower highs & lows may pave a larger pullback in the exchange rate especially as the oscillator struggles to push into overbought territory.
• Interim Resistance: 1.3630 (38.2% retracement) to 1.3660 (78.6% expansion)
• Interim Support: 1.2980 (61.8% retracement) to 1.3030 (50% retracement)

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Trading the News: Canada Retail Sales

A 0.6% rebound in Canada Retail Sales may spark a bullish reaction in the loonie and lead to a near-term pullback in USD/CAD should the data print highlight an improved outlook for growth and inflation.

What’s Expected:

Why Is This Event Important:

Even though the Bank of Canada (BoC) keeps the door open to further embark on its easing-cycle, a marked pickup in household spending may encourage Governor Stephen Poloz and Co. to retain the current policy at the last 2016-meeting on December 7 as ‘Canada’s economy is still expected to grow at a rate above potential starting in the second half of 2016, supported by accommodative monetary and financial conditions and federal fiscal measures.’ Nevertheless, another disappointing sales report may push the BoC to ‘actively’ discuss additional measures in 2017 as the region is expected to return to full-capacity ‘materially later than the Bank had anticipated in July.’

How To Trade This Event Risk
Bullish CAD Trade: Retail Spending Rebounds 0.6% or Greater

• Need to see red, five-minute candle following the release to consider a short trade on USD/CAD.
• If market reaction favors a long loonie trade, short USD/CAD with two separate position.
• Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward.
• Move stop to entry on remaining position once initial target is hit; set reasonable limit.

Bearish CAD Trade: Canada Household Spending Disappoints

• Need green, five-minute candle to favor a long USD/CAD trade.
• Implement same setup as the bullish Canadian dollar trade, just in reverse.

Potential Price Targets For The Release
USD/CAD Daily

• Failure to push above the former-support zone around 1.3630 (38.2% retracement) to 1.3660 (78.6% expansion) raises the risk for a near-term pullback, with the first downside target coming in around 1.3350 (78.6% retracement) followed by the Fibonacci overlap around 1.3290 (61.8% expansion) to 1.3310 (38.2% retracement).
• Interim Resistance: 1.3630 (38.2% retracement) to 1.3660 (78.6% expansion)
• Interim Support: 1.2980 (61.8% retracement) to 1.3030 (50% retracement)

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Trading the News: U.S. Durable Goods Orders

A 1.7% rebound in U.S. Durable Goods Orders may heighten the appeal of the greenback and spark a near-term decline in EUR/USD as it puts increased pressure on the Federal Open Market Committee (FOMC) to raise the benchmark interest rate at the last 2016-meeting on December 14.

What’s Expected:

Why Is This Event Important:

Fed Funds Futures are pricing a greater than 90% probability for a December rate-hike as ‘the Committee judges that the case for an increase in the federal funds rate has continued to strengthen,’ and Chair Janet Yellen and Co. may continue to normalize monetary policy in the year ahead should the data print reinforce central bank expectations for a ‘moderate’ recovery. However, another unexpected decline in demand for large-ticket items may drag on interest-rate expectations as private-sector consumption remains one of the leading drivers of growth and inflation.

How To Trade This Event Risk
Bullish USD Trade: Demand for Large-Ticket Items Rebound 1.7% or Greater

• Need red, five-minute candle following the report to consider a short EUR/USD trade.
• If market reaction favors a bullish dollar trade, short 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.

Bearish USD Trade: U.S. Durable Goods Orders Report Disappoints

• Need green, five-minute candle to favor a long EUR/USD trade.
• Implement same strategy as the bullish dollar trade, just in the opposite direction.

Potential Price Targets For The Release
EURUSD Daily

• Broader outlook for EUR/USD remains tilted to the downside as the bearish trend from May continues to take shape, and the pair stands at risk of extending the decline from earlier this month as long as the Relative Strength Index (RSI) sits in oversold territory; need to see the momentum indicator climb above 30 (textbook buy signal) to favor a larger recovery in the exchange rate.
• Interim Resistance: 1.0780 (100% expansion) to 1.0800 (23.6% retracement)
• Interim Support: 1.0500 (50% expansion) to 1.0517 (December 2015-low)

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