The Weekly Update: A Historic Moment for the Euro

EURUSD and the ECB: QE or Rate Cuts?

The European Central Bank (ECB) monetary policy meeting on Thursday will receive all the attention this week in Foreign Exchange (Forex) market. In the last monetary policy meeting Mario Draghi confirmed the central bank will discuss more easing measures such as a deposit rate cut, refraining from discussing a QE expansion.

Last week Reuters reported the ECB is considering a significant deposit rate cut (as much as 40bps) that sent the Euro lower against a basket of currencies. Recent reports are now suggesting the ECB will announce a QE expansion of EUR 600 billion on Thursday. A QE expansion may trigger a rally in European markets such as the DAX30 or CAC40 and may weaken the Euro in the Forex market.

We have examined EURUSD on multiple time frames and we cannot find any patterns that suggest heavy selling in EURUSD. It is possible the market may be more than fundamental than technical, which is why we are unable foresee the anticipated selling in EURUSD.

The only EUR currency pair that may be prone to selling is EURNZD (and even that is questionable) but it does not necessarily mean it may take place as a result of the ECB monetary policy. We should say that many investment firms are expecting Euro Dollar to reach parity as a result of the ECB and if the fed hikes rates later this month.

EURUSD Trading Strategy

EURGBP is not a concern as there are many economic figures from the UK that are due before Thursday. USDCAD is also not related to the ECB monetary policy meeting. The real question is whether we wish to whether we wish to follow our technical strategies or sit on the fence.

EURUSD Weekly Chart

Please click on the chart to enlarge:

EURUSD Weekly Chart 29/11/15

EURUSD Weekly Chart 29/11/15

EURUSD support line was able to contain the weakness on multiple occasions, we don’t see the current re-test to be any different. As the majority forex traders are holding a short EUR it is possible traders may downsize their exposure, which will reflect in corrective gains in Euro Dollar ahead of Thursday. The nearest support is seen at 1.0468, which is why the protective stop must be layered below as it may be re-tested by the market. If you have been with us since July 2015 you may recall this support line as we have already used it to establish a long trade in EURUSD. EURUSD July 2015 Trading Strategy.

The Stochastic Slow is oversold while positive divergence is noted in the MACD Histogram. Despite this the price may re-test 1.0468 before reversing higher. This is not a guaranteed scenario but it must be considered when taking the trade.

The main concern is not EURUSD but our current market exposure. If we take EURUSD long trade ahead of Thursday this will substantially increase our exposure to the market. It will be for a short period of time (until the end of the week) but it must be factored within our risk management. A gap lower may certainly assist us as the stop’s size will be reduced. We have observed other currency pairs and EURUSD seems to provide the best entry.

We will decide whether we wish to opt for the long trade after 22:00 GMT. We are also revising our projections for USDCAD and EURGBP and expect the anticipated trend we have forecasted for those pairs to materialize by Thursday and not by Friday.

EURUSD Trade Alert Details

Please click on the chart to enlarge:

EURUSD Weekly Chart II 29/11/15

EURUSD Weekly Chart II 29/11/15

EURUSD long at market price (1.0591)
Take profit: 1.1110
Protective stop: 1.0418
Risk Ratio (RR):  1 : 3 (approx.)
Estimated duration: 21 days

02/12/15 UPDATE: Yellen didn’t renew anything in her speech although a Q&A session is due. EURUSD re-tested yesterday’s lows, which is another indication that an uptrend is due. We are aware this is against many expectations for a deposit rate cut and a possible QE extension. The chart however suggests otherwise. There are times that we note a deviation and negate from the charts but we are uncertain this is the case with EURUSD.

If the ECB will take action it will greatly depends if it has been priced-in. The market has already priced-in a possible 20bps deposit rate cut.

02/12/15 UPDATE II: EURUSD is trading at 1.0614 at the time of this writing. As the gains began before the daily close there is a fair risk the price will retrace back to today’s lows in tomorrow’s session.

Please click on the chart to enlarge:

EURUSD Weekly Chart 02/12/15

EURUSD Weekly Chart 02/12/15

We are cutting our exposure earlier than we would have liked to as we must adjust to the market conditions. EURUSD is trading at 1.0614 at the time of this writing. We are closing 30% of the long trade at market price. We will issue another update around the daily close.

02/12/15 UPDATE III: EURUSD is trading at 1.6007 at the time of this writing. The daily close leaves room for a retracement towards 1.0550 before a reversal higher.

This retracement is not guaranteed but due to the ECB monetary policy we are more sensitive to the such technical developments. One alternative is to close the trade at market price and re-assess the market at the weekly close. Similar to EURGBP, the uptrend has not been negated on the weekly chart. We suspect the ECB will refrain from aggressive deposit rates that will trigger a short-lived bullish spike in EURUSD.  This is before the press conference.

We are lowering the take profit to 1.0680. If we are correct the spike may exceed +100 pips and the trade will be closed with positive slippage. The reaction may last for several seconds or several minutes.  The intention of lowering the take profit order is to ensure we will not overestimate the spike and exit the trade with a decent profit.

If we are incorrect than the ECB monetary policy (press conference) may be less dovish and EURUSD is likely to gain over +200 pips. We will not enjoy the gains in EURUSD but through EURGBP.

If the ECB monetary policy is completely dovish the stop is meant to withstand the reaction (1.0468) as described in the strategy. There is an element of risk to our tactics but the weekly chart does not suggest mass EUR selling. As this is the first time we are exercising such a strategy, if any traders are uncomfortable with this the trade can be closed now with a light profit. We are choosing to remain in the trade and we will re-assess the market before the ECB monetary policy meeting.

03/12/15 UPDATE: EURUSD triggered our take profit, this was the spike we have been referring to.

Following the ECB press conference it appears we made a correct decision by following the charts rather than the fundamental speculations.

Please click on the chart to enlarge:

EURUSD Weekly Chart 03/12/15

EURUSD Weekly Chart 03/12/15

As EURUSD long trade is closed this page can now be accessed by all traders. Open trades are restricted to members only. We have been providing trade alerts in the Forex market since May 2014.
The Weekly Update: A Historic Moment for the Euro

Last Updated on May 19, 2021