Exclusive: EURUSD Trading Strategy Ahead of the ECB Monetary Decision

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The ECB ABS Program Vs. EURUSD

The European Central Bank (ECB) is due to reveal details on its Asset Backed Securities (ABS) program, Quantitative Easting (QE) measures to drive the European economy and in return weaken the Euro to  boost European exports, an everlasting battle in the FX markets. Trades will pay close attention to the size and duration of the ABS program as these will greatly impact EURUSD in today’s session.  This analysis is designed for both ne and experienced traders. if you are relatively new to the market, ensure you have a trading plan as it will serve you in the medium tern.

EURUSD Technical Analysis

In our special coverage we will be analyse EURUSD on multiple time frames to produce they key technical levels for the expected announcement. To recap, is highly likely we will experience great volatility in all EUR pairs and crosses. To clarify how volatility may be reflected in EURUSD, the pair may rise +100 pips in less than 60 seconds and a moment later retrace over +150 pips. The upcoming ECB monetary policy meeting, due to the upcoming QE, which receive a greater attention than usual.

EURUSD Monthly Chart

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EURUSD Technical Analysis 2 October 2014

EURUSD Monthly Chart 02/10/14

EURUSD monthly chart provides no decisive direction at the time of this writing. However, we can provide targets for long and short trades due to expected volatility. For long positions, a strong monthly resistance is noted at 1.2900, which is a fair target should the Euro benefit from the ABS program. For short trades, a bearish triangle can be easily noted from the chart. We cannot suggest at this stage the lower end of the triangle will be breached but a re-test is a possibility. A fair bearish target would be 1.2350.

EURUSD Weekly Chart

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EURUSD Technical Analysis Weelkly Chart 02/10/14

EURUSD Weekly Chart 02/10/14

EURUSD weekly provides more decisive information than the monthly chart. We have left the monthly support at 1.2570 (in orange) to show its success of sustaining further losses in Euro-Dollar. The weakness began when the price posted a weekly close beneath the neckline (1.3475, black line) of the Top Head-And-Shoulders (shown via the green arrows), meeting the 100% objective of the reversal pattern at 1.2740 (blue line). Once the target has been met corrective gains are often reflected.

Oversold market conditions as evident from the Stochastic Slow, market price trading outside the Bollinger Bands (in blue) combined with the monthly chart increases the potential for a healthy bullish retracement than further weakness. What we are lacking is a technical entry, which we do perceive from the weekly chart. The overall impression at this stage is to search for long positions, which completely contradicts the fundamental outlook for EURUSD as QE measures should in fact weaken the currency.

EURUSD Daily Chart

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EURUSD Technical Analysis Daily Chart 02/10/14

EURUSD Daily Chart 02/10/14

EURUSD is inline with the weekly chart but with one significant difference, a technical entry is provided. Following the extensive weakness in Euro-Dollar, a hammer was painted in yesterday’s session. This is an indication that the price is threatening to reverse its bearish trend as EUR bulls attempt to regain control. In the Stochastic Slow a positive divergence s noted, another technical signal for corrective gains. A technical entry will not be at market price but from 1.2995, stop layered beneath 1.2570 (monthly support). The targets can be retrieved via Fibonacci,  1.2725 initially (38.2%), then 1.2770 (50%). There is no indication of further weakness via the daily chart, another technical puzzle as the market fundamentals clearly forecast heavy losses in EURUSD.

EURUSD 4hr Chart

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EURUSD Technical Analysis 4hr Chart 02/10/14

EURUSD 4hr Chart 02/10/14

On the 4hr chart we immediately note the potential for reversed Head-And-Shoulders where a diagonal neckline is present. Recent dip is painting the right-hand-shoulder. A dip towards 1.2616 may attract buyers into EURUSD, which may drive the price higher towards the neckline (1.2655). A firm break above 1.2668 may pave the  way for further gains in Euro-Dollar. Only a decisive break below 1.2567 will negate any bullish projections for EURUSD and paint the way for further losses in the pair. From a technical angle dip-buying strategies seem the correct approach. Knowing the market fundamentals does provide unease with our technical analysis for the pair.

EURUSD 60min Chart

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EURUSD Technical Analysis on the  Hourly Chart 02/10/14

EURUSD 60min Chart 02/10/14

EURUSD is testing its hourly support at 1.2633 (orange line)at the time of this writing, support by the 55 Moving Average (MA), currently at 1.2628. If the price closes above the 55MA at the hourly close corrective gains are possible, targeting 1.2710. A close below the 55MA does not provide a short entry. It appears that even on the hourly chart buying-on-dips strategies are the approach ahead of the ECB rate decision.

From our EURUSD technical analysis it appears moderate gains are expected before any selling (if at all) will occur. This does not meet the fundamental outlook for the Euro, which anticipates further losses. The only scenario that will meet the technical and fundamental analysis for EURUSD is strong gains in EURUSD followed by heavy selling.

If you are new to the Forex market we recommend reading our Forex trading guide to be fully aware of the market obstacles. You may express your thoughts on our EURUSD technical analysis ahead of the ECB interest rate decision, scheduled at 11:45am GMT, followed by a press conference at 12:30pm GMT.


Trade alerts are also issued in the weekly update.