DailyFX

EUR/USD Bullish Setup at Risk on Larger/Longer ECB QE Program

David SongShuyang Ren

DailyFX.com -

- European Central Bank (ECB) to Keep Rates on Hold, Retain EUR 60B QE Program.

- Will ECB President Mario Draghi Endorse Expansion/Extension of Asset-Purchases?

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

Even though the European Central Bank (ECB) is widely expected to retain its current policy in September, the fresh updates coming out of the Governing Council may trigger a selloff in EUR/USD should the committee show a greater willingness to expand/extend its quantitative easing (QE) program.

What’s Expected:

EUR/USD ECB
EUR/USD ECB

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Why Is This Event Important:Dovish rhetoric accompanied by a downward revision in the ECB’s growth & inflation forecast is likely to dampen the appeal of the Euro, and central bank President Mario Draghi may talk up bets for additional monetary support in an effort to further insulate the fragile recovery in Europe.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Trade Balance s.a. (JUN)

23.1B

21.9B

Gross Domestic Product s.a. (YoY) (2Q A)

1.3%

1.2%

Retail Sales (MoM) (JUN)

-0.2%

-0.6%

The ECB may take additional steps to shore up the ailing economy as it struggles to achieve its one and only mandate for price stability, and bets for more easing may lead EUR/USD to give back the rebound from the previous month amid the growing deviation in the policy outlook.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Unemployment Rate (JUL)

11.1%

10.9%

Consumer Price Index Core (YoY) (AUG A)

0.9%

1.0%

Economic Confidence (AUG)

103.8

104.2

Nevertheless, we may get more of the same from the ECB as the non-standard measures work through the real economy, and the near-term bound in EUR/USD may gather pace in September should the central bank endorse a wait-and-see approach.

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How To Trade This Event Risk(Video)

Bearish EUR Trade: ECB Shows Greater Willingness for Larger/Longer QE Program

  • Need red, five-minute candle following the policy announcement 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: President Draghi Continues to Endorse Wait-and-See Approach

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