Here’s what to look for from the ECB
Today marks the end of the ECB’s QE program, sort of. By the end of this month they would have racked up nearly $3tn in government and corporate assets.
Has it been a success? That’s a very open question but one we don’t need to get into for the purpose of today.
What counts today is what the ECB does moving forward, and already they’ve been sending out the “sources” pigeons to ease market expectations, something that’s been prevalent ahead of most ECB meetings where there’s been suspected action.
Over the last few weeks we’ve had various titbits and hints dropped into our laps as to what the ECB will do with re-investing and withdrawing QE, what other tools they might bring back to the fore to aid economic growth and any forecast changes.
Today’s meeting is going to be all about next year. QE purchases may be ending but it will still be sloshing around the system for a long while yet.
What to look for in the meeting
- Confirmation of the end of asset buying – This will probably come with a heap of self-praise on how wonderful it all was and how it saved the Eurozone. More importantly, look for Draghi to ease the ending by pumping that the ECB will remain very accommodative after
- Reinvestment of QE – Again, this falls into the “accommodation” rhetoric. This is likely to be a hot topic for the press so expect plenty of questions on it. The ECB will want to make sure that they’re clear reinvestment will run as long as needed
- Withdrawing QE – Possibly more important than the reinvestment talk. The ECB will want to paint a smooth path for withdrawing stimulus. They’ll pump the slow and steady route but anything that indicates a sharper withdrawal will be bullish for the euro. This subject is important in the interim but will fade in importance as time passes, just like it did with the Fed
- Other tools in the tool shed – Some focus will be on the economy and how the staff projections might have been changed. This morning we’ve heard that growth and inflation might be marked down slightly. Again, these hints are usually often more right than wrong. As the ECB won’t have QE anymore (They’ll still say it’s a tool they can use) they’ll look to remind us of the other programs they can use, such as the TLTRO’s. They may even have something new for us as a surprise. It’s likely to be these tools they will turn to, to manage the economy from now on as they can’t just switch QE on and off like a light switch. QE is the big guns, TLRTO’s etc are the small guns
- Rate hikes – They key subject among them all. QE reinvestment, stimulus withdrawal, is all piecemeal compared to rate talk. The ECB has vague rhetoric of “through the summer of 2019 for possible hikes” but it’s open and non-committal. Expect that rhetoric to remain. Expect the ECB to be pushed on it but Draghi will likely remain steadfast in his message
One thing we do know is that Draghi will want to keep expectations under control. The market will be itching for something hawkish, particularly on rates. Only if we get something more solid on rate hikes are, we likely to see the euro rise or fall, depending on what it is. If Draghi maintains the passed summer for hikes line, that might keep EUR mildly supported as it will maintain the ECB’s view that the softer data these last months is temporary. Anything stronger and we’ll jump.
Trading wise, for EURUSD, I’m still in the 1.1200-1.150 camp for places I’d prefer to trade. We’re pretty much in a sweet spot at 1.1370 to possibly see either of those edges come into play if there’s big news.
I still favour shorting a rally in EURUSD to run into the Fed next week, so that’s what I’ll be watching for. As ever, I’m not married to any levels or trades as I’ll have to decipher the headlines like everyone else.
This is a potentially big ECB meeting but don’t overlook the fact that Draghi loves to deflate expectations and volatility as much as possible.
Good luck if you’re trading it.
Philosophy: “Don’t be a Dick for a tick”
Read how Ryan got into trading here
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yeah, i am . the more i read about it and the more i feel like perhaps i should go flat. didn’t enter exactly at the best level either. 1360ish, 137ish, 1390ish.
and now the goddam 100 SMA/H1 is playing support.
I’m going for the “Buon Natale” nothing to see in ECB land today.
Confirm the end of the APP, confirm the reinvestments of proceedings, acknowledge slowdown of growth and CPI in some parts of Europe to dim expectations bu tCPI still running close to projections and that’s it. See you on the 24th of Jan to talk about rates and balance sheets.
Result EURUSD retests a bit lower but unable to break new ground, continue to trade the range.
Anything more will come as a surprise to me .
thanks for the input. am really tired today and the more i read, the more i see as many pros for longs as shorts. getting all confused now.
If you’re tired, switch it off and go and have a snooze. Why feel the need to flog the horse? The ECB isn’t going anywhere.
i dunno. i feel compeled to keep to my schedule. but yeah, words of wisdom.
You’ve always been one to push yourself to hard when trading 😉
oh you noticed that? so true. even worse, i can’t do anything the easy way. WTF is wrong w/ me , i wonder.
You lack patience my friend, always have done (and I mean all this constructively). You always question why the market isn’t “doing something” like it’s a sentient being. It’s not. It’s a number going up and down on a screen driven by forces we cannot see. Sometimes it goes up a lot, sometime’s it goes down a lot, sometimes it goes nowhere. All we do is take a leap of faith when we step into a trade, that our entries are sound and what we’ll lose if they’re not. Everything else is out of our hands so why worry about it?
yeah that’s so true. my biggest weakness is impatience. god knows everyone reminds me of it. my wife, my mistresses 😉 , you name it. or i am plain simple mad. i just went flat my short EU. and i know am gonna regret it. it’s just that i like fast paced market and making decisions quickly or else i fall asleep at my desk. thanks for the advice. gonna work on this.
Just let the charts do the talking. 1.13-1.14 is the inside range between 1.12-1.15. If there’s nothing big going on, sit back and wait for those levels (judging the moves at the time), If they don’t come, don’t trade. I’d rather waste time waiting than money from being impatient 😉
true, but i find it so hard to spend a day doing nothing. well analyzing is all nice and dandy, but if i don’t trade and make some moolah, i feel like i wasted time. i don’t know, it’s weird, probably a psychological issue of mine.
also, if you are already in a trade, why leave 40 pips on the table when the 100 pip move does not materialize (like today w/ EU–it already retraced 40% of its move)? or leave the trade open hoping it will get from 40 to 80 pips only to find out the next day it’s back at BE, or worse, stopped out?
on the other hand, were i not so focused on intraday and able to grab a move from weekly or daily at top or bottom of weekly/daily range, then i suppose it’d be easier for me to let it run for all it’s got. i’m gonna give myself an exercise to spot those range boundaries on long TFs and try a few long term trades. my next challenge so to speak in breaking a habit.
cheers ryan!
What’s better, wasting time and trading safely or chasing $’s and getting into a crap trade then spending the rest of the day moaning about why you did it and then trying to get out of it? 😉
You can easily pick a few levels on the longer-term charts and do the same for the intraday charts. You don’t need more than 2 or 3 for each and then you have something to watch.
Anyway, I’ll stop badgering you about it now 😀
That was pretty close wasn’t it? Only him being rude not to wish us “Buon Natale”….
indeed. and now am frustrated by EU not shaking a leg and in no hurry to touch down @ 1300. dunno how ppl can trade this intraday.
Nice preview Ryan.
Would love to see EU getting pumped up based on baked air towards ~1470-1500 area …
Snooze and snore more like 😉