Thursday, September 6, 2012

ECB Meeting Preview - Get Ready To Roll!!!

Coming Up Today

  • Bank of England MPC Meeting
  • ECB Interest Rate Meeting
  • US ISM Services PMI

It’s crunch time for the ECB today as they hold their monthly interest rate meeting. Earlier in the week, ECB President Mario Draghi stated that they will do what needs to be done to preserve the Euro, even if this includes unlimited sovereign bond buying. With this backdrop, traders, analysts, media pundits, etc have been building up today’s meeting as a “do or die” session for the survival of the Euro.

A few of the headlines:
From the WSJ: Moment of Truth for Draghi's Plan
Bloomberg’s take: Draghi Credibility At Stake As ECB Tries To Save The Euro
The Financial Times: ECB adopts crisis role of IMF

But here’s the little secret, this is like the “gazillionth” time we have heard this type of talk. Whether its been EU Summits, the last moments of a bailout package announcement, or ECB Meeting, the market has given us numerous occasions of “now or never” situations. Basically, it comes down to this; the EU has tried cutting its deficits to strengthen its finances. While there have been deficit improvements, budget cuts have worsened the EU’s overall economy. As such, the ECB is currently betting on growth. They will fire up the printing presses and hope inflation doesn’t hit before growth does.  For traders, the key takeaway is the lack of much movement in the market. Although it seems a given that the ECB will stimulate, European stocks and the Euro are only slightly higher on the week. Therefore, it appears that the news is already being factored into the markets, and prices could tank as traders “sell on the news” or Draghi underwhelms with his plans.

Charts to Watch
GBPUSD: Keep your eyes on this one today. As you can see from the chart, the GBPUSD had hit resistance at 1.5900 for the past week. However, yesterday, the pair finally broke above this level and has been finding support at 1.5900. The chart indicates that buyers that were providing demand at 1.5750 have stepped to around the 1.5900 figure. With demand present, the GBPUSD could be set to explode if today’s news from both the UK and EU leads to risk buying in the market.
EURUSD: After moving steadily higher from mid-August, the EURUSD has begun to go sideways and has spent most of the past two weeks around the 1.2500 level. Overall, it appears that Forex traders are taking a “wait and see” plan with the EURUSD until after today’s meeting. As such, after consolidating, the pair could be primed to either breakout higher and get dumped, once more clarity about the EU’s futures is revealed.

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