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How to Trade the European Central Bank Meeting

Euro coin in front of the giant symbol of the Euro outside the headquarters of the European Central Bank.
Thomas Lohnes | AFP | Getty Images
Euro coin in front of the giant symbol of the Euro outside the headquarters of the European Central Bank.

The European Central Bank has its monthly meeting and news conference on Thursday. Here's how to get ready.

It's already a busy week in the euro zone, what with bond sales and economic data.

Now comes a meeting of the European Central Bank - which Andrew Busch, global currency and public policy strategist for BMO Capital, says creates a trading opportunity.

"We're looking for a chance perhaps with the ECB meeting to sell the euro on a rally," he told CNBC's Simon Hobbs.

Both technical factors and fundamentals are weighing on the euro, Busch says.

It's been trading in "a really nice downtrend channel," he says, between 1.2550 and 1.2975. And the difference in yield between 2-year German and 2-year U.S. bonds is now plus 10.5 for the U.S., he says, indicating that markets expect an interest rate cut.

Busch is hoping that the European Central Bank meeting will produce some kind of good news that would push the currency up temporarily and allow him to get into a short euro position with room to move. He would take profit at 1.2575 with a stop at 1.3050.

Be careful, though. With investors holding extremely large short euro positions, Busch thinks the downside for the currency is limited. "Any euro shorts had better be looking to take back about half that position back at the bottom end of this channel, at 1.2550," he says.

You can watch the discussion on the video.

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