All trading involves risk. Losses can exceed deposits.

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.

All trading involves risk. Losses can exceed deposits.
Euro
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.

Click to enlarge

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.