EURUSD Ahead Of The ECB

Given that there isn’t really any justification for new policy announcements currently, the market’s sensitivity to ECB meetings is expected to remain low and today’s meeting isn’t expected to deliver any shock or suprise.

With recent economic data out of the EuroZone showing some positive signs, the ECB should express their contentment with the thus-far impact of QE and we should see a positive economic outlook with improved staff macro-economic forecasts.

The key thing for this meeting is the importance of the markets expectations of QE and Draghi will likely be sure to stress the Central Bank’s committment to fully delivering the policy measures announced previously as there are still growth risks to the downside.

EUR shorts have been the biggest position recently which creates room for short squeezes to materialize. However, sellers have been keen to step back in at any available oportunity and take the currency lower which seems to be the manifestation of asset reallocation away from the EuroZone driven by QE.

With this outflow expected to continue as investors move away from European negative yields, EUR should continue to suffer the brunt of carry trade demand and given the obvious policy divergence between the ECB & the FOMC, EURUSD should continue lower.

The risk to this is any downside shock in US data fuelling USD position covering. Though ultimately, this likely just creates better levels for sellers to rejoin the hunt for parity.

$EURUSD (240 Min)  15_04_2015

US CPI on Friday is the next big event risk for EURUSD and should we see a better number, the pair is likely to breach currently yearly lows. Still rangebound for now between the Pre FOMC low and the POST FOMC high, fast money has been happy to fade the range, though this last leg down from the April 7th high as price crossed below VWAP, threatens to head deeper wth this shallow pullback indicative of profit taking ahead of the ECB.

VWAP has given some fantastic signals recently and is now teetering on crossing negative once more.

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