All eyes and ears are on the ECB next!
Does the central bank have a hawkish surprise up its sleeve or are bulls in for a disappointment?
Before moving on, ICYMI, yesterday’s watchlist looked at EUR/JPY’s bullish trend pullback ahead of the BOJ decision. Be sure to check out if it’s still a valid play!
And now for the headlines that rocked the markets in the last trading sessions:
Fresh Market Headlines & Economic Data:
Russian President Putin says Nord Stream gas flows to resume this weekEU President von der Leyen reiterates “full cutoff” of gas a likely scenario
Canadian headline inflation slowed from 1.4% to 0.7% vs. 0.9% forecast
Eurozone consumer confidence index slumped from -24 to -27
BOJ kept interest rates on hold and policy unchanged as expected
BOJ Governor Kuroda: Will not hesitate to ease policy further if necessary
Kuroda: Rapid JPY weakening is undesirable
Tokyo to hike COVID-19 medical alert to highest level
Italian PM Draghi says he will resign as coalition party loses support
Upcoming Potential Catalysts on the Forex Economic Calendar:
ECB monetary policy decision at 12:15 pm GMT
U.S. Philly Fed index at 12:30 pm GMT
ECB press conference at 12:45 pm GMT
Australia’s flash PMI readings at 11:00 pm GMT
Use our new Currency Heat Map to quickly see a visual overview of the forex market’s price action! 🔥 🗺️
What to Watch: EUR/AUD
Ready to trade the ECB decision?
Here’s a simple trend play I’m watching on EUR/AUD.
As you can see from the chart above, the pair has been trending lower on its hourly time frame. A test of the descending channel resistance seems to be underway.
Are euro bears likely to jump in during the ECB event?The central bank is widely expected to announce a 0.25% interest rate hike, which would be its first one in over a decade but still likely to be a disappointment for many.
After all, the region is already scrambling to deal with surging inflation, so ECB policymakers are under pressure to do more in order to keep prices in check and avoid a recession.
In other words, a 0.25% hike would be too little too late.
It doesn’t help the shared currency that Italy might be facing a political upheaval, as PM Draghi said that he would resign now that his coalition party failed to draw enough support.
Still, the ECB might get creative with other policy tightening tools and share deets on its anti-fragmentation tool. TBD if this will be enough to keep the euro afloat, though.
In any case, watch out for EUR/AUD reversal candlesticks around the 61.8% Fib, which happens to coincide with the 100 SMA dynamic inflection point.
This moving average is below the 200 SMA to confirm that the selloff is more likely to resume than to reverse, possibly taking the pair down to the swing low at the 1.4750 area next.
Stochastic is still heading north, however, so there could be room for a higher pullback until the 200 SMA dynamic resistance.
Either way, make sure to practice proper risk management when trading around a big news event!