With summer holidays over, the main event of the week ends today with the ECB (European Central Bank) releasing its interest rate decision and changes (if any) in monetary policy.
While no critical announcements are expected, there’s still the potential that Draghi & Co. will take markets by surprise. Let’s have a look at what is most likely for the ECB to announce and where should a surprise, if any, comes.
The ECB is most likely satisfied with the current economic pace in the Eurozone. Growth above potential and wages rising are enough to keep doves in the Governing Council at bay.
Even the EUR/USD level seems to please the ECB. Despite stating it can’t comment on the exchange rate, the EUR/USD level is a crucial element when setting the monetary policy decision. It is only reasonable, as all the Eurozone economies combine to make up the second largest economic block in the world after the United States. Hence, the trade flows between the two sides of the ocean play a crucial role in how large the deficit becomes.
The surprise may come from the staff projections. Today we’ll have the pleasure to see the staff’s estimates for both GDP (Gross Domestic Product) and HICP (Harmonized Index of Consumer Price), also known as just inflation, all the way until 2010.
Downside risks exist for both to be revised lower for 2019 while keeping the HICP steady for 2020. Any deviation from what the market is expecting will likely translate in extreme volatility on the Euro pairs.
Speaking of Euro, it went nowhere in the last months, just like the entire currency market. The EUR/USD trades around 1.16, unable to break higher or lower. The EUR/JPY is gripped in tight ranges as USD/JPY, the other major pair, consolidates too.
All in all, we have a chance to see some exciting developments today both from a fundamental and technical perspective.
Technically, a break above 1.1850 or clear close below 1.15 opens the gates for 1.20, respectively 1.10 on the EUR/USD pair. As for the EUR/JPY pair, it needs to let go once and for all to the all-important 130 level.
What better occasion to do that than the ECB meeting?