Euro in focus ahead of the ECB

EUR/USD has come off its lows heading into the ECB meeting, with some traders closing out shorts heading into the decision.

Source: Bloomberg

The minimum bid rate is expected to remain unchanged at 0.15% but there has been talk around potential stimulus plans. While an all-out QE announcement is unlikely at today’s meeting, there is perhaps a greater chance of QE in the next six months.

The ECB is likely to play a wait-and-see approach after recent efforts, such as the rate cut, negative deposit rates and the TLTRO. As a far as price action is concerned, I feel there is a real risk of a reversal in equities and the euro, unless the ECB signals an imminent plan for QE. Even if the euro rises today, I’d still be looking to sell it on strength.

Any indication that it is business as usual from the ECB could see EUR/USD run up to $1.3227 – the 61.8% retracement of the July 2013 low to May 2014 high. We could then see sellers return in this region and take the pair lower.

However, should we see some action today, then a retest of $1.3100 is likely and momentum plays could then see the pair trade even lower. Shorting the single currency, now the funding currency of choice, is likely to remain the dominant trade in FX markets as traders look to sell on strength or downside momentum.

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