Looking into the last incidents, it is certainly necessary for us to prepare as best we could ahead of the third bank announcement that might rock up the market next: European Central Bank (ECB).

In the last few days, forex market has seen how hard central bank announcement could hit the market. Beginning with Swiss National Bank (SNB) decision that usually went unnoticed, but then inflicted ridiculous amount of damage in last Thursday, pushed Euro down up to 41% against CHF in a few minutes and disrupted a number of trading systems. The Black Thursday then followed by Canada central bank announcement a few hours ago that suddenly cut rates down from 1% to 0.75% under threat of lower inflation due to cheap oil prices. Looking into the last incidents, it is certainly necessary for us to prepare as best we could ahead of the third bank announcement that might rock up the market next: European Central Bank (ECB).

Pengumuman

1. Note Figure Of 1.1 Triliun Euro

ECB press conference that will be attended by Mario Draghi is scheduled to be held in Frankfurt later today (22/1). It has long been rumoured that a Quantitative Easing (QE) program is going to be announced in the event. According to the latest news, an inside tip quoted by Bloomberg said that Mario Draghi and the Executive Boards proposed to spend 50 billion Euro per month till December 2016, or as much as 1.1 trillion Euro to fight deflation. But the plan is still under discussion and the final decision could be different.

QE program is a massive purchases in which ECB will print money to buy Eurozone countries' bonds and with that inject much needed fresh liquidity into the economy. But the variety among Eurozone economies circumstances may limit ECB power in its buying program by only purchasing high quality bonds. This is because there are bonds from Eurozone pheriphery that offer subpar rating and higher risk, such as the Greek ones. Among those details, the figure is obviously the most important, but other details too, cannot be ignored.

 

2. Prepare For The Unexpected

Expecatation now hinge on 1.1 Trillion Euro figure, and therefore Euro has just became more risky. According to Dean Popplewell from OANDA as quoted by Bloomberg, This market is very nervous. The bullish expectation for Draghi to deliver is somewhat priced in. If the ECB wavers at all, these markets are going to severely punish the ECB.

Meanwhile, Kathy Lien from BK Asset Management tend to consider it as an effort by ECB to control QE reaction. According to Lien, the 500 billion euros is the number to beat. The larger the figure, the heavier the pressure on the Euro will be. That is why most traders are shorting the Euro. But Lien advised traders to consider covering part of their shorts ahead of the ECB announcement because with the bar set high, there is significant risk of disappointment. Apart from observing the figure of the buying program, market will also check on other details like how risk will be shared and other qualifications. With so many things uncertain, Lien suggested, it may be best to wait for the ECB announcement before trading the EUR/USD.

 

3. Beware Of Margin Changes And Wider Spreads

Black Thursday have taught forex brokers an invaluable lesson in acticipating market volatility. Because of that, ahead of ECB announcement, a number of brokers have changed their margin requirements related with the Euro. Some of them are:

  • Alpari RU: In January 22nd, margin requirement could be upped to five times on EURUSD, EURCAD, EURDKK, EURGBP, EURAUD, EURJPY, EURNOK, EURNZD, EURSEK, EURSGD, USDNOK, USDSEK, USDDKK, GBPNOK, GBPSEK, EURTRY, EURPLN, EURILS, EURZAR, EURHKD, XAUEUR, and XAGEUR pairs. If liquidity dropped, then close only mode could be activated by the broker.
  • FXOpen: Margin requirement for all Euro crosses lifted fivefold in 48 hours starting from 00:00 (GMT+2) on January 21st.
  • FXDD: From January 21st, all leverage will be decreased by 50%.
  • IC Markets: From January 22nd, margin requirement on all pairs rise to 1%.
  • HotForex: HorForex did not change its margin requirement, but warned clients of the possibility of wider spread due to rising volatility before and after the announcement commences.
  • FXOptimax: Adjusted margin requirement on certain pairs until the next announcement released. Margin requirement of  EURCAD, EURGBP, EURAUD, and EURNZD are elevated fivefold. While margin requirement of EURSEK, EURTRY, EURPLN dan EURHUF are elevated tenfold.

Most forex brokers has not yet announced similar changes, but it is clear that if you seek to trade during this time, you have to be aware of the possibility of margin changes and wider spread that might disrupt your trading plans.

Prepare a proper management, and limit your position sizes. Take care not to be eaten by huge waves of market volatility. Remember also that after ECB announcement, market will next wait for Greek election result that may influence the Euro somehow. Earlier, analysts predicted EUR/USD will fall to 1.15, but that prediction was before Swiss unexpectedly remove their Euro peg. In the current circumstances, there are chances the Euro will fall deeper up to 1.0 as predicted by the most bearish analysts; or else bounce back from 1.16 towards 1.2.