News Compilation ahead of Draghi's Speech (Long Bias)
Draghi is due to speak tonight during the ECB Press Conference. I guess today this is all market will talk about. The morning session up to this point has not hinted much, aside from EURAUD moving up due to AUD bad data, the rest is kinda sideway. Running into this event I don't have any particular insights, given the structure of first statement, followed by Q&A, there will be a lot of choppy price action during the broadcast.
What I'm trying to do in this post is to compile the news watch from various source to get a sense of market's expectation. All in all, not likely to trade this like the CAD rate hike as this is not very direct impact on the currency (yet), I'd prefer to avoid the choppy news.
News Compilation:
MarketWatch:
citing Carsten Brzeski, chief economist at ING "The stronger euro has made the ECB’s taper tiptoeing even more complicated. While a clear hint on tapering at this week’s meeting could send the euro even higher, potentially undermining the recovery, room to postpone tapering is limited due to bond scarcity" => Weak to Neutral
"A Reuters report last week said the rising euro is worrying more policy makers, leaving an announcement on QE tapering at Thursday’s meeting highly unlikely. The report said an announcement might not be ready until December." => Weak to Neutral
“As the ECB is probably not yet unanimous on the first option, we expect that Thursday’s meeting will again be about what Draghi did not say, rather than what he did,” => Confusion expected
Bloomberg:
"the ECB is likely to support the consensus view in the marketplace that, as of January 2018, it will be reducing the pace of monthly asset purchases." => Strong
"This belongs in the context of a gradual phasing out of the program, combined with rate hikes and, much further down the road, an outright contraction of a balance sheet" => Strong
"markets have become very comfortable in interpreting the lack of official guidance on the policy normalization as a green light to increase financial bets on the continuation of a low volatility " => Interesting point, if Draghi don't make a clear guidance or if he does make a hawkish one, EUR will still strengthen
BK Asset Management:
"For this reason, we think the ECB will go ahead with reducing asset purchases on Thursday" => Strong
"Most economists expect the ECB to cut asset purchases by 20B euros and if that’s all we see, EUR/USD will break 1.20 but probably struggle to extend its gains above 1.21. If they cut by 30B or more, EUR/USD should hit 1.21. However if they forgo reducing asset purchases and postpone the decision to October or December, EUR/USD will fall to 1.1800 and possibly even lower." => a very clear guidance and scenario analysis from BK
The Guardian:
"Time to raise eurozone interest rates, says Deutsche Bank chief" => Strong
"The ECB is pumping €60bn a month into the markets in an attempt to stimulate growth, making a total of €2tn, and has operated a negative interest rate since 2014." => now BK's estimate makes sense, that's about a 30% to 50% cut to the supply of EUR in the market
My interpretation so far is that general market expecting a strong EUR thus the alpha bet is on the short side. We should watch for a very specific talking point of 1) a guidance of how they gonna taper and better yet 2) an announcement of tapering itself. Paring this kind of sentiment with AUD weak data, I think the pair will drifts past resistance 1.495. We still need more meaningful price action from UK session to get a hint of what European big boys thinking but I will just go ahead and play into the news with a very wide stop and exit before the news announcement.
What I'm trying to do in this post is to compile the news watch from various source to get a sense of market's expectation. All in all, not likely to trade this like the CAD rate hike as this is not very direct impact on the currency (yet), I'd prefer to avoid the choppy news.
News Compilation:
MarketWatch:
citing Carsten Brzeski, chief economist at ING "The stronger euro has made the ECB’s taper tiptoeing even more complicated. While a clear hint on tapering at this week’s meeting could send the euro even higher, potentially undermining the recovery, room to postpone tapering is limited due to bond scarcity" => Weak to Neutral
"A Reuters report last week said the rising euro is worrying more policy makers, leaving an announcement on QE tapering at Thursday’s meeting highly unlikely. The report said an announcement might not be ready until December." => Weak to Neutral
“As the ECB is probably not yet unanimous on the first option, we expect that Thursday’s meeting will again be about what Draghi did not say, rather than what he did,” => Confusion expected
Bloomberg:
"the ECB is likely to support the consensus view in the marketplace that, as of January 2018, it will be reducing the pace of monthly asset purchases." => Strong
"This belongs in the context of a gradual phasing out of the program, combined with rate hikes and, much further down the road, an outright contraction of a balance sheet" => Strong
"markets have become very comfortable in interpreting the lack of official guidance on the policy normalization as a green light to increase financial bets on the continuation of a low volatility " => Interesting point, if Draghi don't make a clear guidance or if he does make a hawkish one, EUR will still strengthen
BK Asset Management:
"For this reason, we think the ECB will go ahead with reducing asset purchases on Thursday" => Strong
"Most economists expect the ECB to cut asset purchases by 20B euros and if that’s all we see, EUR/USD will break 1.20 but probably struggle to extend its gains above 1.21. If they cut by 30B or more, EUR/USD should hit 1.21. However if they forgo reducing asset purchases and postpone the decision to October or December, EUR/USD will fall to 1.1800 and possibly even lower." => a very clear guidance and scenario analysis from BK
The Guardian:
"Time to raise eurozone interest rates, says Deutsche Bank chief" => Strong
"The ECB is pumping €60bn a month into the markets in an attempt to stimulate growth, making a total of €2tn, and has operated a negative interest rate since 2014." => now BK's estimate makes sense, that's about a 30% to 50% cut to the supply of EUR in the market
My interpretation so far is that general market expecting a strong EUR thus the alpha bet is on the short side. We should watch for a very specific talking point of 1) a guidance of how they gonna taper and better yet 2) an announcement of tapering itself. Paring this kind of sentiment with AUD weak data, I think the pair will drifts past resistance 1.495. We still need more meaningful price action from UK session to get a hint of what European big boys thinking but I will just go ahead and play into the news with a very wide stop and exit before the news announcement.
تعليق:
Trade review: I've changed the trade strategy around 15 mins away from the Draghi speech. Instead of just exiting the position (which at the time is about break even) I moved the stop loss up and decided to risk only 1/5 of the initial position.
My rationale for this was I feel the Euro has been unduly sold a bit too much heading right into the speech (or rather it wasn't bought enough). I hope that if I risk just a bit and then Draghi does says something hawkish the reward will be very good. This plus the fact that I'm already in the money with AUDCAD trade gave me comfort.
Turns out the event unfold exactly how I predicted it, a lot of back and forth. I had a few seconds to take profit right after the speech begin and the pair jump back to 1.495 and I did not re-act in time (Note to self, dinner table is never a good place to make trade). I was immediately taken out at a tiny loss on the swing back. Ultimately, EUR pairs went higher, especially the EURUSD with bad USD unemployment data to boost.
2 key lessons for me:
1) Trade into the news, I should have splited my bets across various other currencies at least to the potential weak and neutral one instead of just fixated on EURAUD (the overall theme is to bet EUR strength) and that would have increased my upside potential.
2) Do not make decision that divert away from intial trade plan unless some concrete evidences show up (and if I can't resist the urge, at least be in a better position to manage the trade).
Actually I am happy that I ended this trade at a loss, this will be a better reminder than a win no matter how big.
Sidenote: Now that the EUR has surged and Draghi specifically said no end to QE until Dec, I think I prefer look to short EUR back down.
My rationale for this was I feel the Euro has been unduly sold a bit too much heading right into the speech (or rather it wasn't bought enough). I hope that if I risk just a bit and then Draghi does says something hawkish the reward will be very good. This plus the fact that I'm already in the money with AUDCAD trade gave me comfort.
Turns out the event unfold exactly how I predicted it, a lot of back and forth. I had a few seconds to take profit right after the speech begin and the pair jump back to 1.495 and I did not re-act in time (Note to self, dinner table is never a good place to make trade). I was immediately taken out at a tiny loss on the swing back. Ultimately, EUR pairs went higher, especially the EURUSD with bad USD unemployment data to boost.
2 key lessons for me:
1) Trade into the news, I should have splited my bets across various other currencies at least to the potential weak and neutral one instead of just fixated on EURAUD (the overall theme is to bet EUR strength) and that would have increased my upside potential.
2) Do not make decision that divert away from intial trade plan unless some concrete evidences show up (and if I can't resist the urge, at least be in a better position to manage the trade).
Actually I am happy that I ended this trade at a loss, this will be a better reminder than a win no matter how big.
Sidenote: Now that the EUR has surged and Draghi specifically said no end to QE until Dec, I think I prefer look to short EUR back down.
Better pick a more neutral one or even underperforming earlier in the day such as NZD, JPY or USD next time
Anyway, I'm still confident the trade is either a small profit to a scratch and a good lesson to my chosen method next time.