Alpesh Patel's NEWSLETTERPRO – Euro hangs in the balance ahead of ECB meeting, Dollar still holds strong

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MORNING BRIEF
It’s been a moderate session yesterday with no major developments in the currency market. Even though several sectors of the US government have been temporarily shut down after the Congress and the Senate failed to come to an agreement regarding raising the debt ceiling for federal spending the US Dollar held its own. The American currency showed weakness on Monday but yesterday pulled back mildly higher across major peers. This resilience in the US Dollar might hint that investors are not abandoning their positions since they feel that this shut down will only last a few days to a couple of weeks at maximum.

For today however attention turns to the European currency as the ECB holds its meeting and everyone will be focused on what the ECB President Mario Draghi will speak about on the press conference. We expect Draghi to take a dovish tone on the European recovery effort especially after the German Unemployment figures came surprisingly higher than expected. This could weight down on the Euro and we are keen to see if it will be enough to push it out of the 90-pips range it has been for some time now.

ECB meeting and ADP Employment Change

Undoubtedly the important news event of the day is the ECB meeting and more importantly the press conference after it. The Euro has benefited a lot these past weeks from the weakness in the Dollar and has reached as high as 1.3570 but discouraging economic figures have deprived the Single currency the chance to go higher. We will watch President Draghi’s press conference with great interest looking for hints on what the central bank is prepared to do to bolster economic recovery. Last time Draghi spoke he mentioned the possibility of another round of LTRO stimulus, a possibility however that appears far reached at this moment. Around the same time the ADP Employment Change will come from the US as well but focus is still on the discussions at Washington so we don’t expect much Dollar reaction to these figures.

Economic Calendar

Time

Currency

Event

Importance

Forecast

Previous

12.45

EUR

ECB Rate Decision

High

0.5%

0.5%

13.15

USD

ADP Employment Change

Medium

180K

176K

13.30

EUR

ECB Draghi holds press conference

High

 

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TECHNICAL ANALYSIS & LEVELS

 

EUR/USD

Euro popped briefly above the 1.3560 level yesterday just enough to trigger our long entry there and reach our first target at 1.3585 before immediately pulling back to hit our stops that have been brought to the breakeven price. This uncertainty in the European currency seems troubling and we will be looking into today’s ECB press conference to find clues on how the European region is recovering. Disappointing figures from the German economy have weighted down on the currency and a possible dovish tone from President Draghi could cause a sell-off. For the day we will remain patient as the currency pulled back into this range it holds for some days now and we will wait to see what kind of a reaction the ECB press conference will cause.

GBP/USD

The Pound retraced lower yesterday as we discussed and is now challenging the 1.6160-70 support. We feel that the bias for the British currency is still bullish and we would like it to start climbing back higher. We will attempt a long entry at this point as the retracement seems to have lost momentum and the MACD is pointing to a reversal higher. We will place a long entry around the 1.6180 level and our first target will be at 1.6260 and our secondary target at 1.6320, stops just below the 1.6115 area. We will place this trade with a reduced trade size, probably half as we don’t have such a clear signal.

FTSE 100

The FTSE 100 seems to have settled in a range for the past 2 days and there are indications that a retracement higher is possible. We will move carefully with a long entry just above the 6,470 points with targets coming at 6,495 and 6.538, stops below the 6,420 level. We feel that the index is undecided on whether to move higher or drop even further thus we would like to approach this trade with a reduced trade size as it would be a shame to risk the profits we got from it on Friday and Monday.

Gold

Gold is still out of sync with the rest of the market. Our long entry just above the $1,335 level yesterday was triggered but we suffered a loss as our stops at the $1,320 area were hit after another sudden drop in the commodity’s price. Gold seems to be reacting to the current situation in a rather suspicious way and we feel that major players might be dumping their positions ahead of a possible major shift in direction. We need to clarify this and until we examine this issue a bit further and tap into our sources around the world we will stand clear of the yellow metal. It is always a good decision to stay away from a particular instrument when you feel that it is either out of sync with market conditions or you don’t have the grip on what is moving its price at this time.

All charts have been created using FXCM’s Trading Station platform.

This is the free, time-delayed version of NewsletterPro, a subscription-based product.
If you would like to receive it before 7:30am, please visit InvestingBetter.com to subscribe. 

 

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