EUR/USD Long At 1.1355 As It Is Too Early To Change ECB Rate Guidance

My Trade Ideas

  • EUR/USD: long at 1.1355, take profit at 1.1580, stop-loss 1.1255
  • USD/CAD: short at 1.3350, take profit at 1.3010, stop-loss 1.3485
  • AUD/USD: long at 0.7145, take profit at 0.7350, stop-loss 0.7050

Market Overview:

EUR/USD: Financial markets have been ahead of the curve in their worries over the Eurozone growth outlook, and have reduced significantly their view on lift-off this year. Draghi used the December meeting to explain that he viewed market expectations as focused on a thinking that the economy will worsen but importantly "they well understood our reaction function". While the market’s focus is on the date-dependent nature of forward guidance, Draghi is likely to emphasise the state-dependent aspect. It is too early to adjust rate forward guidance, but if it happens it should not be a complete surprise. The ECB meeting this week is likely to have a mild dovish tilt as the ECB focuses more on downside risks to growth but is still unwilling to officially shift risks to the growth outlook which will likely remain “broadly balanced”.

Investors expect a dovish statement from the ECB this week. But in our opinion, it is too early to a significant shift in ECB policy and the EUR/USD is likely to appreciate if the ECB is less dovish than expected. We opened EUR/USD long at 1.1355 today.

GBP/USD: British workers' pay growth hit a new 10-year high and employment grew by much more than expected in the three months to the end of November, as the labor market remained robust despite other signs of an economic slowdown ahead of Brexit.

Average weekly earnings, including bonuses, rose by 3.4% on the year, the Office for National Statistics said on Tuesday, the biggest rise since mid-2008 and compared with a median forecast of 3.3%. Excluding bonuses, earnings rose by an annual 3.3% in the three months to November. Adjusted for inflation, total pay rose at the fastest pace for two years.

Employment increased by the largest amount since the three months to April, although it is unclear whether businesses will maintain hiring at these levels as uncertainty around Brexit mounts.

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