For the second consecutive month, Barclays Capital sold EUR/USD as a tactical trade recommendation ahead of the ECB policy meeting. It didn’t work out for Barclays last month as the trade was stopped out later on a loss of 130 pips. Let’s see how this trade will play out this time. The new position entered at 1.3733 with a stop at 1.3825 and a target of 1.3550.
Here is the rationale: “In contrast to the consensus, while it is a close call, Barclays expects the ECB to take action to stabilize inflation expectations amid inflation that is likely to stay at or below 1% through end 2015. Specifically, we expect the ECB to cut the refi rate (by 15bp) to 10bp and most likely also cut the deposit rate to negative 10bp. As an alternative to negative deposit rates, the ECB instead may end sterilization of its SMP holdings. Any unexpected easing by the ECB should prompt a lower EUR, with a move to negative deposit rates likely leading to a larger decline,” Barclays clarifies.