The European Central Bank meets later today at 1230GMT for its monetary policy meeting. While not much is expected in terms of changes to the existing monetary policy, the focus is likely to shift on the press conference. On the agenda will be the recent developments or lack of, in terms of GDP growth in the Eurozone and the subdued inflation which has barely moved despite the ECB launching its sovereign bond purchases earlier this year.
On the table, could also be the exchange rate where the Euro has formed a base near the lows of 1.04 – 1.05 in recent weeks and has retraced most of the declines in the first half of the year. While Draghi has mentioned repeatedly in the past that the exchange rate was not on the ECB’s mandate, the markets cannot rule out any subtle hints on talking down the Euro, in light of the recent currency wars which has seen a significant devaluation from China.
The slowdown from China could also be touched upon in today’s meeting. While the markets expect to see a rather neutral stance from the ECB’s meeting today, it will be interesting to note how Draghi views the current economic scenario in the Eurozone.
Some market participants are of the view that the ECB could shed light on the future course of its current sovereign bond purchases. However, it is unlikely that Draghi will focus much on this as it is too early to speculate whether the ECB will continue its bond purchases beyond September of 2016. For the moment, given the lack of growth and inflation in the Eurozone, we could very well expect Draghi to focus more on the bond purchases for the moment than send out a hawkish tone talking about QE plans beyond September 2016.
The ECB’s staff economic projections will therefore likely to be the main event to focus on in today’s meeting and expectations are for the revised staff expectations to be lower from the previous meeting, from 0.3% and 1.5% on the HICP headline and core inflation.
The Euro, single currency has managed to stage a strong turnaround, largely thanks to the Yuan’s devaluation. On the daily charts, EURUSD has formed an inside bar and could potentially break out in either directions with the range high and low of 1.1331, 1.1207 respectively. On the weekly charts there is a strong dark cloud cover pattern which signals a bearish reversal or a continuation. Considering the above, EURUSD could potentially test the immediate support at 1.1133 followed by a major test back to 1.10 level of support/resistance. To the upside, major resistance comes in at 1.148 – 1.144 which if tested could prove to be a key level that could attract new sellers into the market. Overall, the Euro is likely to either range sideways or decline lower in the near term.
