Will The ECB Surprise The Market?
MaiMarFX | Oct 29, 2020 06:15AM ET
We got what we have been looking for Wednesday with the GBP/USD breaking its narrow trading range and providing a profitable movement for short traders. The currency pair broke below the symmetrical triangle formation (stated in our analysis from 28/10/20) and dropped to a daily low of 1.2916, the current short-term support area.
In order to expect further losses, we now focus on dips below 1.2890 and 1.2860. If the pair is however able to recover its losses and stabilize above 1.3050, we could see a run for 1.3270.
The Dax extended its slide and fell below 11500. No support area could halt its decline until now and given the new coronavirus lockdowns by the euro region’s biggest economies traders should generally expect further losses. Dropping below 11400, lower targets could be at 11300 and 11000.
Today all eyes will turn to the European Central Bank. Most economists and investors still think the ECB will wait until December to expand its bond-buying program and precisely this expectation poses a risk for surprise action today.
Most market participants expect ECB officials to send a clear message that they will do more in December when they will have updated economic projections but if the dramatic shift in risks with new coronavirus lockdowns pushes the central bank to act earlier than anticipated, we could see a big reaction in the EUR/USD.
In short, if the ECB announces preemptive monetary stimulus as early as today, we will see a big market movement with the euro possibly breaking its current trading range (see chart). However, the more likely scenario is a dovish hold until December, which could either leave the euro unaffected or send it lower.
The ECB rate decision is at 12:45 UTC, followed by the ECB Press conference 45 minutes later. Traders will also watch the U.S. GDP release at 12:30 UTC, which could have an impact on the U.S. dollar and thus all dollar crosses.
The pair is confined to an overall trading range between 1.20 and 1.16. If the euro drops below 1.1680, we could see an extended decline toward 1.1630-1.16 (green ellipse). Above 1.1850, the 1.1930-mark (red ellipse) comes into focus and an unlikely break above that level could send the euro surging toward 1.20.
Disclaimer: All trading ideas and expressions of opinion made in the instructions are the personal opinion and assumption of MaiMarFX traders. They are not meant to be a solicitation or recommendation to buy or sell a specific financial instrument.
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