Forex Signal (Thu April 7 2011, 7:45am NY Time EST) - EU ECB Interest Rate

Henry Liu

Former FPA Special Consultant
ECB (European Central Bank) will be rendering its rate decision today, it is widely believed that ECB will hike its short-term rate by 25 basis points to 1.25%... Here’s the forecast:

7:45am (NY Time) EU ECB Rate Decision Forecast 1.25% Previous 1.00%

The Trade Plan

ECB rate decision comes in two part, the first one is the 7:45am rate announcement followed by the 8:30am Press Conference where ECB chief Trichet issues the official statement on this rate decision. Since it is extremely unlikely to get a surprise from ECB, there is usually no volatility following this release, and our time is better served to focus on Trichet’s speech in 45 minutes.

However, in the unlikely event that ECB surprises the market by keeping rates unchanged or hike rates by 50 basis points instead of 25, then expect market to go into shock and we should jump in immediately on a spike trade because no matter what the slippage or spread is, we will end up making positive pips.

Of course, if ECB decides to hike rates to 1.25% as expected, then we should stay out of the market.

For more information about my trading methods:
Henry's News Trading Method

The Market
As usual, the real event for ECB rate meeting is the Press Conference at 8:30am. However, since press conference is beyond the scope of news trading and into advanced market interpretation, I'm going to advice everyone to stay out of the market until Trichet finishes his press conference (usually within 1~2 hours).

Here's the link to watch the Webcast Live at 8:30am EST.

With recent intensified rhetoric warning of an impending rate hike, market has already priced in 25 basis points, therefore we should not see an overwhelming amount of market reaction if ECB hikes rates as expected. In the event that ECB does not hike rates, a sharp sell-off on the EURUSD is expected before the press conference.

Additional Thoughts
It is important to understand that ECB press conference is delivered in 2 parts: The first part is the prepared statement by Trichet and copy of the statement will be available on ECB's official website. Then it will be followed by a Q&A session, where onside media members will have a chance to ask questions, market reaction is usually unpredictable, therefore it is best to stay out of the market during the entire press conference.

Pre-news Consideration
There should be no pre-news consideration for this particular release, as the real event will be Trichet Press Conference at 8:30am.

Historical Data & Chart For ECB Minimum Bid Rate Decision


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