Markets On Tenterhooks Ahead Of Draghis Exit Meeting

Draghi’s final meeting is just hours away, with several Euro crosses sitting on ‘make or break’ levels.

For a full preview of what to expect from today’s ECB meeting, you can read yesterday’s ECB preview by my colleague Fiona Cincotta. Although the basic premise is for Euro to weaken if ECB underdeliver, or strengthen if they come up with the goods. With it being Draghi’s last meeting, he could opt to just cut rates and leave the door open for his successor, Christine Lagarde to take over. Unless of course he wants to go with a bang. Either way, the Euro will be the main currency for FX traders to monitor in the upcoming European session.

EUR/CHF remains supported after breaking its bearish trendline on Monday. That said, we’ve seen a Rikshaw Man doji to show a hesitancy to break higher, followed by a bearish outside day to warn of a correction. Yet whilst it remains above the 1.0882 low, we suspect a reversal is underway, given the bullish divergence ahead of the trendline break.

We’d like to see Monday’s low at 1.0888 to hold as support, and could provide an area to buy dips post-shakeout if volatility erupts before direction takes off.
As clear break of Monday’s low assumes ECB delivered, and could head back to the lows. Which will be interesting, given SNB have intervened with the Swiss franc to help cushion the fall on EUR/CHF.

EUR/AUD is currently testing the bullish trendline from the April low, and currently forming a spinning top ahead of the ECB meeting (we doubt it will maintain this pattern to the close). As it’s testing its trendline, it could be argued the optimal trade were if the ECB is to disappoint and send EUR/AUD higher.

Bulls could consider entering long above the trendline (if ECB disappoints and sends Euro broadly higher) and initially target the 1.6138 high.
Given the pair’s ability to produce large swings, a break above 1.6138 could suggest the low is in and bulls could push it back towards 1.6309.
If ECB deliver the goods, we’d expect the trendline to break and for prices to test the 1.5895 low. A break of which would bring 1.5800 and the 2019 low into focus.
With no signs of a bullish divergence of trough forming on price action, a trendline break could be on the cards whilst prices remain below 1.6138.

EUR/NZD almost looks like EUR/AUD did a few weeks back, only its yet to test its bullish trendline. Currently trading within a 120-pip range after falling from its 2019 highs, a bearish divergence formed with RSI before rolling over and prices are trading near the lows of the 1.7121-1.7240 range.

Given the strength of momentum from the 1.7893 high, and EUR/NZD’s tendency to produce large swings, the bias is for a bearish breakout and run towards the lower trendline.
Traders could wait for a break of the 38.2% Fibonacci ratio for confirmation of a break, and use 1.7000 as a interim target where the 200-day MA and 50% retracement level reside.
A break above 1.7240 today assumes Draghi delivered the goods and the near-term bias flips to bullish. However, we’d continue to monitor price action for a potential topping pattern (or a lower high) as we suspect the leg lower from the 2019 high has more to give.

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.