Risk will be high.
The ECB met. The ECB announced no change in policy. They reiterated the forward guidance language in their statement.
We will now wait for Mario Draghi to give his growth and inflation review and conduct his typical hour long press conference.
Adam outlines his thoughts on the meeting here. It will all be in the words that Draghi chooses to use and highlight in his comments. Adam's words make a lot of sense. Less dovishness is what the market is looking/hoping for (in inflation forecasts or perhaps tone). With the forward guidance being the same with a reaffirmation of interest rates and bond buying remaining the same, the EURUSD has dipped. Nevertheless, he can still can stir the pot. Be aware.
Before I outline the levels, let me warn you that when Draghi speaks the risk-o-meter is at extreme levels. Not only is the risk from just playing in the market higher than normal (so Market Risk of the price moving up or down), the Liquidity risk and Event risk are also at extreme levels too. Liquidity risk is that the market liquidity suffers and that leads to volatile markets. It can also be that liquidity is greater than normal, also moving the market quickly Event risk for a press conference can last for the full hour. You really don't know when he will drop a bomb but the first 15 minutes are the most vulnerable.
There are times when trading risk is just right. When the three risks are at extremes is the most dangerous time to trade. Sure you could be on the right side, but there is a greater chance that the market whips around, and you find what you thought looked bearish has been switched to bullish.
So be careful.
If you do decide to trade, look for extremes, or breaks to lean against technically.
If you look at the hourly chart, the price moved right near the middle of the recent price action (going back to Feb 20th) in pre-announcement trading today. It has backed away from that level on the rate decision move.
- The mid point comes in at 1.05669. The high for the day reached 1.0569.
- Also near the level is the 200 and 100 hour MAs at 1.0563 and 1.0570 respectively.
- Not far from those MAs is the 100 bar MA on the 4-hour chart at 1.0575.
So the 1.0563-75 area becomes the line in the sand for more bullishness. If the price can push above - and STAY above that area, the bulls are more in control.
From there the upside target levels become more - well - more tricky (or less certain). The reason is the market has been in this range. So for me the next significant area comes in at the 1.0629-32 area where there a number of swing levels gong back to Feb 14th.
Above that high from Monday AND the 200 bar MA on the 4-hour chart at the 1.0639-44 are nearby as well. Get above opens the door for traders starting to look toward the 100 day MA at 1.0664.
A move to the 100 day MA would imply a trading range for the day of about 141 pips. That is a pretty good run for the day. To 1.0632 is 108 pips for the day. That is more doable given the ranges we have seen lately and the expectations that the Fed is on the way to tightening (plus unemployment tomorrow). So be aware that unless he is full blown hawkish (not just a little hawidh), that 1.0632 area will likely be a stall point.
On the downside,
- The 1.05209 was the swing low from Feb 15th. In trading today the low stalled at 1.0524.
- Below that the double bottom at 1.0494 becomes the key level. Not only is it the double bottom but on the daily chart it defines an area going back to April 2015 where there have been a number of swing levels (between 1.0494 and 1.0520.
A move below that level will next target:
- The March 2015 low at 1.0461. A move to this level implies a range of above 107 pips for the day. Again, that is doable but should be a stall given the recent volatility in the pair. Just be on the look out.
- The Jan 2017 low at 1.0339 becomes the final key target. Below that and we are in bearish open waters for the EURUSD