Draghi and EUR/USD: Play the Expectation

October 23, 2015

Play the Expectation:
Trading isn’t about what happens, it’s about what markets expect to happen in the future. There is no clearer example of this than last night’s European Central Bank interest rate decision and accompanying press conference from Super Mario Draghi.

“EUR Minimum Bid Rate on hold at 0.05% as expected”

The ECB left interest rates unchanged as expected, but the Euro was HAMMERED by aggressive selling after Draghi not only gave the bland ‘jawboning’ that they are willing to expand their QE asset purchasing program, but gave the nod that they are actively exploring ways to do so.

It looks as though December is all but a sure thing when it comes to the ECB adding stimulus, with most probably both a reduction in the deposit rate even further below 0% while also expanding the rate of QE. Futures markets now have priced in over a 50% chance that they cut in December but the tone of the market is screaming that even more is going to be priced in as we head towards the next meeting.

The ECB’s main worry is that of low inflation nowhere near targets, structural reforms throughout member states lagging and of course the external pressures that China and the US Federal Reserve on hold present. Weakening the Euro further again seems to be the only bullet left to combat these issues and the race to the bottom continues.

EUR/USD Daily:
eu13
Click on chart to see a larger view.

Of course the dovish rhetoric sent the Euro plummeting through short term support, pushing it to multi-week lows where price now continues to sit.

On the @VantageFX Twitter we have been discussing the levels of support in play but if you’re game enough to jump in front of this steam train with big, bright QE headlights beaming down on you then you are braver than me. Momentum: Do not fight a losing battle.

If you’re really keen (or you know, really bored…) then you can watch the latest ECB Press conference on YouTube here. Technology these days huh!

———

On the Calendar Friday:
Tonight sees the release of a whole bunch of Eurozone PMIs. If we do happen to find a short term bottom at the above support levels, any miss in expectation in these numbers could be seen as confirmation that the economy is as bad as the ECB says, and could be an opportunity to short into.

EUR French Flash Manufacturing PMI
EUR German Flash Manufacturing PMI
EUR Flash Manufacturing PMI

CAD Core CPI m/m

———-

Chart of the Day:
To compliment Wednesday’s look at the SP500 chart, we today take a look at little brother: The SPI200.

SPI200 Daily:
spi1
Click on chart to see a larger view.

The Aussie SPI has also experienced somewhat of a recovery from its Black Monday drop where it fell hard through resistance and confirmed its bearish trend by making a lower low.

The key levels on this chart are the bearish trend line and the horizontal support/resistance zone that price has now pulled back to re-test. If these two levels can line up then that just adds to the significance of the level.

SPI200 4 Hourly:
spi2
Click on chart to see a larger view.

If this chart looks a little strange, it’s because I had to shift the timeline across so as to fit a key 4 hourly touch that helps highlight the importance of the red zone that we currently have in play.

The 4 hourly is to show the short term channel or flag pattern that sees price pulling back toward the major trend line where we expect a reaction. Yes, we have horizontal resistance in play, but the major trend line is still relatively far away and while we are still inside the middle of this short term flag, I’m not jumping out of my skin to sell. Yet.

This one is still playing out and open for discussion. Can you see the opportunity in trading on MT4?

Dane Williams – @VantageFX

Risk Disclosure: In addition to the website disclaimer below, the material on this page prepared by Australian FX broker Vantage FX Pty Ltd, does not contain a record of our prices, or an offer of, or solicitation for, a transaction in any financial instrument. The research contained in this report should not be construed as a solicitation to trade. All opinions, news, research, analysis, prices or other information is provided as general market commentary and marketing communication – not as investment advice. Consequently any person opening a trading account and acting on it does so entirely at their own risk. The experts writers express their personal opinions and will not assume any responsibility whatsoever for the actions of the reader. We always aim for maximum accuracy and timeliness and FX broker Vantage FX shall not be liable for any loss or damage, consequential or otherwise, which may arise from the use or reliance on this service and its content, inaccurate information or typos. No representation is being made that any results discussed within the report will be achieved, and past performance is not indicative of future performance.

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