How to Trade the European Central Bank Meeting
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The long awaited September European Central Bank meeting is looming. Here's your trading plan.
Ready for Thursday's European Central Bank meeting? Currency investors have been fixated on little else since the end of the Jackson Hole economics confab.
Right now, hopes are running high that ECB President Mario Draghi will take steps to aid troubled euro zone countries and tamp down the debt crisis - but Andrew Busch, global currency and public policy strategist at BMO Capital Markets, has his doubts.
Reports that Draghi will start the ECB buying short-term debt of troubled countries, "sterilizing" the purchases by removing the same amount of money it spends elsewhere in the system, are boosting risk appetite, Busch told CNBC's Melissa Lee.
"They are providing more details, so they are leading the market to believe they're going to act," he says. (Read More: ECB Chief to Propose Unlimited Bond Buying: Report)
But Busch notes that the ECB is leaving itself room to sell bonds it buys from troubled countries if they aren't meeting their austerity targets, and "that is certainly something a country like Ireland or Portugal may want to think about before they go and ask for help from the ECB."
Busch also argues that the ECB is unlikely to announce a bond buying plan on Thursday because officials have said in the past that countries first have to request aid.
In the unlikely event that they do announce a move, Busch thinks that will boost risk sentiment and lift the euro. If not, he expects disappointment. But his view that action is unlikely, combined with the technical factors for the euro, makes him "continue to like to sell the euro" against the dollar, he says.
This is not a trade for risk-averse investors, Busch says. But for those with strong stomachs, he recommends entering the trade at 1.2625, setting a stop at 1.2725 and a target of 1.2325.
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