Market Awaiting ECB Interest Rate Decision

Yesterday"s Trading:

The euro/dollar closed slightly down on Wednesday. The euro restored from a 1.0945 minimum to 1.1034 on the American session. The buyers managed to win back their day"s losses but couldn"t hold on to their positions above 1.10.

The Reserve Bank of New Zealand (RBNZ) and Canada didn"t have much effect on the euro with their interest rate decisions. However, the risks of a fall for the euro against the New Zealand dollar increased significantly, thereby making the euro fall 156 points against the USD after the RBNZ made their announcement. The Kiwi could provoke a weakening of the euro during European trades.

The RNBZ unexpectedly dropped its rate by 0.25% to 2.25%. The regulator announced that it did so due to the slowing of European and Chinese growth, in addition to that of emerging markets.

The Bank of Canada kept its rate unchanged at 0.5%.

Market Expectations:

A corridor of 120 points has formed over the 3 days before today"s ECB meeting. EUR/USD is trading around 1.0973. The price is at the lower limit of the corridor.

The market is waiting for the ECB to make an announcement regarding interest rates. Market participants expect interest on deposits to be dropped by 0.1% to -0.4%. Together with this, the ECB could increase asset purchasing from 60 to 75 billion euro per month.

If the ECB undertakes such measures then we can expect the euro/dollar to fall to 1.0880. Since the market has already taken these measures into account, the fall will last a few moments and then shoot back up. It"s unclear what Draghi will say at the press conference, but I reckon what he has to say will be more important than the decisions themselves.

Day"s News (EET):

14:45, ECB decision.

15:30, Draghi press conference.

15:30, Canadian January new housing price index, US initial unemployment benefit applications.

Technical Analysis:

After the fall of the NZD/USD, the euro/dollar fell to 1.0973. The price is near the LB meaning that the market on the hourly is balanced.

No sharp fluctuations are expected before the ECB"s decision comes out. In my forecast I"ve marked out the approximate amplitude of the fluctuations after the decision and Draghi"s speech. Forecasts in different directions are not recommendations to trade. This is how I reckon the market will react; what you think is up to you. I"m against trading during fundamental events due to high Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad Read this Term and price Slippage Slippage In financial trading, slippage refers to the difference in price between the price an order was intended or expected to be filled and the actual price an order was filled. Slippage is a very contentious issue among retail traders, which can lead to issues. Many traders view levels of slippage at brokers as a key determinant for their business. For example, in forex trading, if a trader places a trade intending to enter a buy on the EUR/USD at 1.1080, but they only get into the market at a price In financial trading, slippage refers to the difference in price between the price an order was intended or expected to be filled and the actual price an order was filled. Slippage is a very contentious issue among retail traders, which can lead to issues. Many traders view levels of slippage at brokers as a key determinant for their business. For example, in forex trading, if a trader places a trade intending to enter a buy on the EUR/USD at 1.1080, but they only get into the market at a price Read this Term.

The technical picture on the daily is contradictory. The oscillator stochastic has formed a euro sell signal. Wednesday"s candle is indicating a strengthening of the euro to 1.11. Draghi should allow the situation and set the path of the euro for the month ahead.

By: Vladislav Antonov