Volatility may pick up big time for the euro with the ECB monetary policy statement right around the corner; here’s a look at possible setups on EUR/USD to trade the event.
Intermarket Snapshot
| Equity Markets | Bond Yields | Commodities & Crypto |
| DAX: 12540.51 +0.40% FTSE: 7509.67 -0.62% S&P 500: 3006.27 +0.03% DJIA: 27264.48 -0.31% |
US 10-yr 2.041% -0.033 Bund 10-YR -0.385% -0.029 UK 10-YR: 0.669% -0.022 JPN 10-YR: -0.144% +0.004 |
Oil: 57.22 +0.79% Gold: 1427.30 +0.39% Bitcoin: 9678.96 -1.62% Etherium: 207.15 -2.46% |
Fresh Market Headlines & Economic data:
- US new home sales rise; prior three months revised down
- IHS Markit Flash U.S. PMI: Stronger service sector growth helps offset manufacturing downturn in July
- U.S., China to hold trade talks early next week: U.S. Treasury chief
- U.K. Mortgage Approvals Edge Higher in Stable Housing Market
- The Conference Board Leading Economic Index for China increased 0.9% in June 2019 to 149.6
- Oil edges up on U.S. stock decline, Mideast tensions
- IHS Markit Flash Eurozone PMI; economic growth falters as manufacturing downturn deepens
- Euro zone lending figures mask growing divide
- The July Australia Flash PMI pointed to slower rises in both business activity and new orders at the start of Q3
- New Zealand June trade surplus of $365M (higher than expected); quarterly tade balance was a deficit of $773M
- Jibun Bank Flash Japan Compositie PMI: output growth accelerates during July
- BOJ divided on need to ease next week, strengthen forward guidance
Upcoming Potential Catalysts on the Forex Calendar:
- RBA’s Lowe speaks in Sydney at 4:05 am GMT (July 25)
- German Ifo Business survey at 9:00 am GMT (July 25)
- European Central Bank monetary policy statement at 1:30 pm GMT (July 25)
- U.S. Durable goods orders at 1:30 pm GMT (July 25)
What to Watch: EUR/USD
As mentioned in the intro, we’ve got the upcoming European Central Bank’s latest monetary policy statement coming soon, which will likely bring big volatility to euro pairs. In a big event like this, liquidity is pretty important so we’ll take a look at setups on arguably the most liquid currency pair: EUR/USD.
On the one hour chart above, we can see a recent momentum move lower, likely traders pricing in what is expected to be a dovish ECB statement, especially after today’s disappointing European PMI updates. So, it’s possible that on the release of the ECB’s statement, we could get a “buy-the-rumor, sell-the-news” bounce in EUR/USD as traders take profits if the ECB statement is indeed dovish (e.g., lowering of forward guidance, weak inflation rhetoric, rate cut, etc.). In this scenario bearish EUR/USD traders should watch the 1.1200 – 1.1225 area for potential resistance/reversals candles as it was a previous support area and it is the Fibonacci retracment area of the most recent swing lower. If the market simply breaks lower from current levels (currently trading around 1.1150), momentum may pick up as this area is a major support area that held back in April of 2019.
For the bulls, it’s tough to see a scenario where the ECB is optimistic on the Europe’s outlook and/or doesn’t see the need for some form of economic stimulus. The only opportunity may be the aforementioned “buy-the-rumor, sell-the-news” reaction, but it may be a limited move as sellers could be waiting between 1.1200 – 1.1275 (previous consolidation/resistance areas).
Whatever your bias may be, always remember that price is king and that you shouldn’t try to fight it too much during top tier events despite what you think the ECB should do and how traders should react. Basically, always have a plan to limit your risk if it doesn’t go your way. Good luck!
