How To Play Tomorrow's ECB Rate Announcement

The reason for the equity gains disappearing is here. According to the Wall Street Journal, the European Central Bank (ECB) is potentially considering laying off further rate hikes after tomorrow's expected rate hike, which is causing the Euro to have some weakness. According to Omer Esiner of Commonwealth Foreign Exchange, there is the “increasing risk” the ECB does not raise rates tomorrow, and if it does, Jean-Claude Trichet could signal that the ECB will hold off on raising for a while, which could send the Euro back down towards $1.40 on the dollar. The correlation lately has been higher Euro, higher equities, so it makes sense that a weaker Euro would deflate stocks somewhat. At last check, the Dow was up 35 points, pairing its gains in half. The NASDAQ is up 2 points after having been up around 10 points, and the S&P 500 is down a fraction of 1 point. ACTION ITEMS:

Bullish:
Traders who believe that Trichet will raise rates tomorrow and will continue might want to consider the following trades:

• Go long the CurrencyShares Euro Trust FXE, which should benefit from a strengthened Euro.

• Traders can also go long equities, ranging from Caterpillar CAT to Apple AAPL, as these names are likely to continue powering higher on the back of a stronger Euro.

• Tech is the most sensitive to a stronger European economy and Euro, so tech names such as ARM Holdings ARMH, Qualcomm QCOM and Intel INTC could be boosted if the ECB raises rates.

Bearish:
Traders who believe that the ECB is not going to raise rates tomorrow, or if they do, be done for a while may consider an alternate positions:

• Shorting the CurrencyShares Euro Trust would be profitable on a weaker Euro.

• Traders can also add or initiate positions in the U.S. dollar, as a weaker Euro generally means a stronger dollar. One name likely to benefit is PowerShares DB US Dollar Index Bullish UUP.

• Traders can also go short the broader markets, by shorting shares of SPDR S&P 500 ETF SPY or Diamonds Trust ETF DIA if the ECB fails to deliver.

Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.