Additional notes on last post

One of the good explanations for being at the middle Bollinger Band could be like we are playing 'Tug 'O' War...you know...where the white tape on the rope is in neutral territory for a while, before the winning team pulls the rope, and the opponent with it.

This pair is in that neutral territory. So, I copied the following, because it is a brief and effective way to describe where we are (from Forex.com). This pair is preparing for tomorrow morning's rate cut decision, and the Trichet conference afterwards:

Commentary: The European Central Bank is expected to cut its target interest rate to 1.00% from 1.50% on Thursday, April 2nd, at 1145GMT. The forecast is a bit contentious, with some economists looking for a less aggressive -25 basis points cut while a minority actually see the ECB standing pat on rates. We think the overwhelming likelihood is that the bank does the full -50 basis points, in an effort to not be perceived as being even further behind the curve. If the bank cuts as expected, the main focus will once again be on the press conference at 1230GMT.

ECB President Trichet provided little in the way of a preview when he testified before the European Parliament Economic Committee earlier this week. However, there is speculation that the bank will announce some form of quantitative easing at the upcoming meeting and market participants will be keenly watching for this. Indications are that the bank will extend the terms of loans to major eurozone banks and that they may buy corporate debt to ease strains on firms facing difficulties in securing credit. ECB members alluded to some of these measures last week when they mentioned the possible purchase of private debt.

Ultimately, it could well end up being a lose/lose situation for EUR. If the ECB does announce some form of balance sheet expansion, the EUR is likely to come under renewed pressure on the notion that the bank is now printing money. We would expect the negative EUR reaction to mirror the downbeat reaction in USD when the Fed announced their quantitative easing initiative a few weeks ago. If the ECB fails to announce measures beyond a rate cut, the market is likely to exact punishment on the EUR just as well. Traders will probably view the unwillingness to act on this front as a prescription for an even weaker economy going forward.

Trading Strategy: The overall strategy remains to sell EUR on strength rather than buy it on dips. If the ECB cuts rates by the expected -50 basis points and indicates that aggressive quantitative easing is on the horizon, we would expect EUR to head markedly lower. The latest hourly consolidation in EUR/USD can be approached in a couple of ways - as a pennant consolidation or a symmetric triangle consolidation. The former would project EUR/USD down to 1.2700 eventually, while the latter points to a more modest correction to 1.3000/1.2970. The break level comes in by 1.3180 for both patterns. If the ECB does not announce quantitative easing, the move lower could stall into the 1.3110/00 zone. Moves higher, meanwhile, should find a good barrier into the 1.3280/90 and 1.3340/50 zones.