The Euro will take the center stage starting with Thursday’s ECB (European Central Bank) interest decision as market participants are widely expecting a new stimulus package to be announced. It is rumored that 750 billion is already priced in the Euro quotation. This means that any possible package below that amount is considered to be a disappointment, while anything above is a pleasant surprise.
How should the currency pairs react to such news? We could see a relief rally in the EUR related pairs if the ECB fails to reach expectations. On the other hand, we should see a drop if the amount is bigger than that mentioned above.
The governor of Banque de France, Christian Noyer, said recently that in order for the QE (Quantitative Easing) to work, it needs to be capped, hinting that a large-scale move is likely and that the ECB is up to something. This comes from the head of the second-largest central bank within the European economy, so we should take it pretty seriously.
The bigger the package will be, the stronger the negative reaction on the Euro related pairs will be. As for the other pairs, we can only assume that any stimulus will bring a lower JPY all over the dashboard, with the focus being on the USDJPY, which is most likely about to pop the 120 level again.
It is important to note that from a technical analysis point of view the market is forming a possible irregular failure as the second wave of an impulsive move and, providing all stays at current levels, the measured move for the third wave points to higher values well above 120.
One thing that managed to go unnoticed happened the previous day as the USDCAD broke the 1.20 level so quickly that by the time the level was pierced, the pair didn’t look back until it hit 1.21. This is not really “normal” for a Tuesday trading session, however, it may be normal for this Tuesday. The Bank of Canada has no reasons for cheering the Canadian economy on, as low oil prices and recent employment data don’t bode well for the Canadian dollar.
All in all, we are up for a very interesting end to this trading week, with Draghi being the star, once again.
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Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
