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Chart of the Day: EURUSD

There’s little doubt EURUSD is going to see a sizable pickup in activity from clients over the coming 12 hours or so, with the EUR focused on the European Central Bank meeting (21:45 AEST) and the US on August US CPI.

Chart of the Day: EURUSD

Making a playbook for the ECB is tough, because expectations have been hosed down of late from the ECB themselves. There’s a risk of disappointment (EUR positive). Yet it’s just so hard to hold long EUR exposures when you have the king of doves Mario Draghi due to speak, and he has fine form in promoting a weaker EUR. As detailed in today’s edition of the Daily Fix, options traders have ramped up their beliefs of a move in EURUSD, with overnight implied volatility now sitting at 15.75%. This details a market expecting a 79-pip move on the session, so the implied move is reasonably elevated. That needs to be a consideration for everyone’s risk management and position-sizing.

The setup on the daily at this stage suggests a market that sees a higher probability of lower levels, with traders focused on the downtrend drawn from the November 2017 lows. Rallies have been contained by the five-day EMA, where on balance the market is sensing a suite of measures from the ECB. That should, at its most simplistic, further cement the EUR as a funding currency for carry traders.

It takes a brave soul to hold EUR exposures over a key event risk like this, especially with heightened implied vol and a diverse playbook.

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