Hello Traders,
All focus today will be on the ECB rate announcement and while we expect tapering announcements, we shall be tracking the amount of QE extended till end of 2018.
There are risks though especially for Euro bulls. While we expect Draghi to announce monthly purchases of about €30B throughout 2018 and plans for reinvestment following tapering, risks will come if purchases are reduced say by €20B to €40B for 12 months. Currently, the ECB purchases quality and scarce €60B worth of bonds.
Either way, I think there will be a reaction to the downside which in my opinion will provide a wonderful buying opportunity.
Despite these purchases and strong economic fundamentals in Germany and France, the ECB is still concerned with inflation not growing as expected and any form of tightening without inflation passing the 2% threshold could present risks and drag the entire region back to deflation.
Plus, the ongoing Catalonia political standoff is another challenge that needs to be resolved. Anyway, we expect the deposit rate inch higher beginning 2019 and a consequent shift of capital inflows into the Eurozone following this rate normalization. Both situations are obviously supportive of the Euro.
As noted, the Germany bunds yields also dropped following ECB’s late June Sintra meeting. From the charts, there is a potential of a further slide down even though it is 90% down from 2008 highs of 4.5%. If Draghi turns out to be hawkish, then the Euro and German Bunds will rally.
In the 4HR chart, stochastics are turning from over bought territory and a sell signal is already in place. Secondly, notice that double tops at ¥134.50. If there is a price surge above ¥135, then we cancel the bear projection and look to buy. However, the monthly chart and the bunds are over extended to the upside and perhaps maybe we should be selling as many expect a dovish tapering announcement.
From a technical perspective, I will be expecting two scenarios. A hawkish taper followed by ECB announcement of reinvestment plans and Euro will surge above resistance trend line at ¥135. On the flip side, a dovish statement-€40B for 12 months, with no mention of reinvestment plans or that of shoring inflation and price will dip. My first target will be ¥131 and ¥128 through to December. However, I will wait first till after today’s announcement since price action is trending at significant resistance levels.
Have a good trading time guys.

eurjpy 4hr chart-26.10.2017

Source: Dalmas

eurjpy daily chart-26.10.2017

Source: Dalmas

eurjpy monthly chart-26.10.2017

Source: Dalmas


  1. Hadyn S. says:

    Excellent Analysis, Dalmas. I thought maybe the pair was finding support at the monthly & weekly M3 cluster, but I was wrong. That double top, has my bullishness tapered, so instinctively, my strategy was to scale in lightly, and start with a tight stop, so it didn’t hurt much. I knew this would be the last legit bull trigger until it fades all the way down to the Monthly central, so I took a shot. I don’t think the weekly will hold, however, it was the trigger point in my early week post. So we’ll see.

    1. Dalmas Ngetich - FOREX.TODAY says:

      True, in fact, I was actually burnt when I sold this pair and held for 3 weeks from 09.10.2017 before this nice deep. I could have waited this a sell signal was printed last week or even today but no worries, I’m now in the money which is encouraging. Now, I was cautious before ECB but I’m confidence this is that one rare trade to hold even for a year. Double bar reversal pattern with overbought stochastics both in the weekly and monthly chart is a gem. Got to head to the mines.

  2. Hadyn S. says:

    With this pair in mind, what are your thoughts on the Japanese CPI coming up in the Asian session? The CPI numbers I follow, exclude fresh food & energy, and have been bouncing back and forth between barely expanding, @ .2% and Zero. The expectations are @ .2 again, so my assumption is that if they come in 1 or 2 tenths higher, this pair will find support, and start appreciating again. However, if they drop back to zero, this might add to the bears already fueled by Draghi’s dreariness, and that should support your bearish theory above.

    1. Dalmas Ngetich - FOREX.TODAY says:

      inflation has always been a sensitive topic in Japan since 1987. From forecasts, Tokyo and Core CPI should tick higher to 0.5% and 0.8% respectively. That is bullish for the Yen. I also expect CPI to beat expectation and drive this currency lower but in case it remain flat or prints a lower figure, I really think Euro will find support and appreciate slightly before Euro bears drive this pair lower. Remember, investors across the sphere are disappointed by ECB and Draghi, so there is a sentiment shift leaning more towards bears.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.