The European Central Bank meets today for its monetary policy review with the biggest question being whether the ECB will expand its QE purchase program beyond 2016. Nearly 10 months after the ECB announced its massive bond purchase program in January this year in an effort to boost inflation in the Eurozone area, there hasn’t been much progress. Inflation remains subdued in the Eurozone, as with most of the major developed economies.
In the past few weeks, the QE question has been a main driver with various ECB officials talking for and against expanding the bond purchase program. Mario Draghi, for his bit has taken the neutral stand noting that it was too early to speculate on expanding the scope and pace of the bond purchases.
Today’s ECB event is likely to be a non-event with the Central Bank refraining to take any further measures based on the fact that number of members in favor of maintaining the status quo has been rather overwhelming. That said; expect Mario Draghi to touch upon concerns for inflation outlook and the risks from the emerging markets and the effects of a slowdown from China. Eurozone’s GDP growth has remained weak with various financial sentiment surveys showing a significant drop which could bring some headwinds to the Euro area exports sector.
German export orders have continued to fall steadily over the past month which puts the bias to the dovish side as far as the tone of the ECB is concerned. Failure to address these issues could see the Euro rally in the short term. Some market expectations are for the ECB to announce an expansion to its QE program from the current €60bn per month to about €80bn per month towards December or early next year.
Besides the ECB’s press conference, Eurozone consumer confidence will be released a few hours later which suggests that consumer confidence might have edged lower in October on account of global economic uncertainty.
EURUSD Technicals
Starting with the monthly time frame, EURUSD closed last month with a doji candlestick pattern, aptly representing uncertainty on the direction of the single currency. There is a small chance that the consistently higher lows being formed could evolve into a bearish flag pattern which points to a significant decline over the longer term horizon.
The weekly chart on EURUSD shows last week forming a strong doji/shooting start pattern, which could be validated should we see a bearish close this week. The rejection near 1.14845 is indicative of a potential move to the downside in the near term. The minor dashed trend line is very likely to be breached, which could see a potential move lower towards 1.113 in the near term. The weekly chart for EURUSD however cautions for a possible upside move if 1.14845 resistance is breached.
For the near term, the Euro is definitely poised for a move to the downside. As such, watch out for price action near 1.11 level of lower support and any bullish candlestick patterns off the weekly time frame could trigger an early signal for a move to the upside.
