ECB Easing in Focus

EURUSD is in the crosshairs today as traders brace for the October ECB meeting. The bank is widely expected to cut rates by a further .25%, reflected in the heavy selling we’ve seen recently in EUR. Indeed, market forecasts have now turned heavily dovish for the ECB with traders eyeing 1.5% worth of cuts over the next six meetings. The risk today, therefore, is that EUR bears might be upturned if the ECB fails to cement these expectations. Given the selling we’ve seen and the build up in EUR short positioning, the market is ripe for a short squeeze today if the ECB doesn’t deliver enough dovishness in its outlook and guidance today.

Weak Eurozone Data

Data has been trending lower recently in the eurozone, leading to the shift in tone we’ve heard from the ECB recently. Having previously signalled a desire to hold rates steady for a period following the cut over summer, the bank’s hand has been forced by sinking inflation and weak labour and growth readings. Still, unless the bank delivers a decidedly dovish outlook today, perhaps suggesting the potential for more aggressive easing if needed (.5% cuts), EUR could see some reactive upside into the end of the week.

US Retail Sales

Traders will also be keeping an eye on US retail sales today. If we do see a short squeeze on the back of the ECB, buying could be amplified by any downside surprise in US retail sales today. Alternatively, if the ECB does send EURUSD lower, the move could deepen on any upside surprise in today’s US data.

Technical Views

EURUSD

The sell off in EURUSD has seen the market breaking down through the 1.0937 level and back under the broken bear trend line. With momentum studies bearish, focus is on a continued push lower and a test of the 1.0724 level next. Back above 1.0937, 1.1126 is the key level for bulls.