Alpesh Patel’s NEWSLETTERPRO – ECB’s Rate Decision to reflect on the Euro, US Q3 GDP to move the Dollar – what to expect from these key events

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MORNING BRIEF

© Alpesh Patel

The US Dollar traded lower yesterday against almost all of the majors as investors are preparing for the 2 significant days of this week: today and tomorrow. Today we have 2 major events to tackle: the ECB Rate Decision and the release of the US Q3 GDP figures. As we’ve said many times this week, we don’t expect any changes in the rates policy from the ECB at this time but we want to listen to what the ECB President has to say about the fiscal conditions in the region. Recent comments from policymakers have hinted that another round of stimulus might be needed next year and we would like to see whether Mario Draghi shares this pessimistic tone and whether any hints towards lowering interest rates are made. If so, the Euro will face a radical sell-off as investors will be cutting short their positions ahead of lower interest rates and will look to invest their money elsewhere. On the other event of the day, the US Q3 GDP draws our attention as analysts expect GDP to slow to 2% in the third quarter. However, recent data that came in these past couples of weeks seem to indicate that the toll the economy took due to the government shutdown was a minor one. Thus we could see a surprise to the upside here and if this happens then the demand for Dollars will be renewed. Finally, the Bank of England’s Rate Decision is also scheduled for today but we know that there will be no changes to the policy as the Pound is reaching towards new highs. The BoE policy is still dovish but not as much as the ECB and the Fed and this points to new gains for the UK currency as yesterday’s Production reports came out positive for the Pound.

Major events on the Economic Calendar

As we mentioned above, today the Economic Calendar holds a host of major events with the Bank of England coming first at 12.00 to announce their Rate Decision and their Asset Purchase Target for this month. We expect no changes in policy from the British central bankers as the UK economy seems to be on a good path towards recovery. A few minutes later however, the ECB Rate Decision and Mr. Draghi’s statement will require our attention as we need to assess how concerned – if any- is the ECB President over the fiscal conditions in the European region and whether a rate cut is on the way. Finally, at 13.30 the US economy will take center stage as the Q3 GDP is scheduled for release and a possible uptick here could spur another pro-Dollar rally in the market.

Economic Calendar

Time

Currency

Event

Importance

Forecast

Previous

12.00

GBP

BoE Rate Decision

High

0.50%

0.5%

12.00

GBP

BoE Asset Purchases Target

High

375B

375B

12.45

EUR

ECB Rate Decision

High

0.5%

0.5%

12.45

EUR

ECB Deposit Facility Rate

High

0.0%

0.0%

13.30

USD

Initial Jobless Claims

Medium

335K

340K

13.30

USD

US Q3 GDP

High

2.0%

2.5%

13.30

USD

Personal Consumption

High

1.6%

1.8%

 

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TECHNICAL ANALYSIS & LEVELS

 

EUR/USD

The Euro gained some ground over the Dollar yesterday and our long entry order was triggered at 1.3525 but the pair didn’t pick up enough momentum to reach higher and settled around this area. For today, we would like to adjust our stops since the day holds a lot of significant events that might rock the markets. Thus, our stops will be placed at the 1.3480 price tag to avoid excess losses that could be caused by the increased volatility we expect today. Our targets remain fixed at the 1.3570 and 1.3640 levels as we hope for words of optimism from Mr. Draghi today to propel us higher.

GBP/USD

The Pound held its previous gains against the Dollar yesterday and held a tight range near the 1.6100 mark. We would like to join this upwards momentum if it reaches for new highs thus our suggestion for today is a long entry just above the 1.6120 level with targets at the 1.6150 and 1.6200 price tags and a stop placed at the 1.6050 level. The Pound seems to have momentum to move higher and if this ranged formation is broken upwards then the pair will look for much higher price levels.

FTSE 100

The FTSE 100 remained trapped in this tight range for another day and it seems that the downwards break of this formation draws near. Thus we will repeat our short scenario for the UK index: we favor a short entry just below the 6,700 points, our targets will be set at the 6,650 and 6,560 points levels and our stops needs to be placed just above the 6,790 points. As said yesterday the index’s failure to produce a new high seems to conclude the recent uptrend and a retracement lower seems quite possible.

Gold

Gold remained in the same range it has been for the past sessions and waits for a new Dollar related catalyst to provide momentum. Today’s Q3 GDP might be this catalyst so we need to be ready for Gold to break out of this range. A downwards break will lead us towards our second target at  $1,278 as we already have a short trade in play for a couple of days now but an upwards rally will close us out at the $1,325 price level where we’ve moved our stop. However, as we mentioned yesterday as well, should Gold clear above the $1,325 level then we would like to enter into a long trade with entry point just above the $1,325 price tag and targets coming at the $1,336 and $1,355 price levels, a stop needs to be placed just below the $1,305 area. Please be prepared for a possible increase in Gold’s volatility today and don’t over-leverage your positions in Gold.

 

 

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 subscribe by clicking here.

 

 

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