It’s decision day at the European Central Bank and market participants brace for a dovish tone at the ECB press conference which was illustrated by the euro’s recent weakness. Today’s policy decision will not bring forward a new set of Staff Economic Projections, which is why a formal change of the ECB’s posture is unlikely until June. However, odds remain high that ECB President Mario Draghi will use his platform to outline a more dovish tone moving forward. Part of the reason for disappointment can be attributed to last year’s sharp euro rally which weighs on inflation. Furthermore, the slowdown in the pace of economic activity growth justifies a cautious tone. With regard to the ECB’s QE program, the end or start to unwind QE in September is not a foregone conclusion, so the market’s focus remains on Draghi’s rhetoric.
As for rate hike expectations, the market is not pricing in a policy change until at least Q3 2019.
If Draghi emphasizes that the gap between the end of QE to the first rate increase is much longer than is currently projected, the euro could further weaken against the dollar.
In a nutshell, the risk for the euro remains tilted to the downside and if the central bank intends to push the euro down, this meeting might be the best opportunity to trigger a bearish trend.
However, there is also potential for surprise. If Draghi’s tone is a bit more optimistic than expected, the euro could rise towards 1.2350. The ECB’s rate decision is scheduled for 11:45 UTC but as no changes are expected, the main focus shifts to the press conference at 12:30 UTC.
EUR/USD
We saw the euro trading around its critical support at 1.2150. As soon as that barrier is significantly breached to the downside, we expect further losses. On the topside, if the euro rises back above 1.2250 we may see a leg higher.
Here are our daily signal alerts:
EUR/USD
Long at 1.2190 SL 25 TP 20, 40
Short at 1.2130 SL 25 TP 20, 40
GBP/USD
Long at 1.3960 SL 25 TP 20-30
Short at 1.3911 SL 25 TP 20-30
We wish you good trades and many pips!
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