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EUR: 3 Things To Expect From ECB

Published 06/05/2019, 03:32 PM
Updated 07/09/2023, 06:31 AM

Kathy Lien, Managing Director Of FX Strategy For BK Asset Management

Daily FX Market Roundup June 5, 2019

Thursday's European Central Bank monetary policy announcement will be a big one. EUR/USD rallied for 4 days straight this week but the sellers are returning ahead of the rate decision.

What To Expect From The ECB:

  1. Details on their new Targeted Long Term Refinancing Operation
  2. Updated economic projections
  3. New Forward Guidance

Back in March, the ECB announced a series of new loans that would provide additional stimulus to the Eurozone economy. They said the details of this program known as TLTRO-III would be provided in June. Now that the time has rolled around, EUR/USD traders are eager to see how generous the program will be, how it will be priced and whether the interest rate will be negative, zero or close to zero. Their inflation and growth forecasts will also be updated and ECB President Draghi will deliver a speech where he could talk about the possibility of further action if growth or inflation weakens further.

The Eurozone is in a low-growth phase and despite some improvements, the most important drivers of monetary policy – consumer spending, inflation, manufacturing activity and retail sales weakened.
German retail sales fell -2% in April, which was significantly worse than the market’s forecast for an increase. German unemployment rolls also increased the most in 4 years and while part of that was due to changes in categorization, the labor department warned that this was the first sign of a weakening economy. For now, the EU escaped auto tariffs but a simultaneous slowdown in the U.S. and China will hit the economy hard. If the ECB felt that more stimulus was warranted before the U.S. slapped China with another round of tariffs, the need for accommodation has only increased since then.

EUR/USD crashed when they rolled out TLTRO-III and the sell-off could resume if the central bank lowers their growth and inflation forecasts. But that may not be enough. Given how deeply oversold the EUR/USD is, investors may have already discounted ECB dovishness and accounted for lower economic projections. So the nail in the coffin for the euro will have to be changes in their forward guidance and talk of new loan programs beyond the current TLTRO.

Euro Data Points

Latest comments

kath... tell me about NFP today...
euro rally like a crazy woman drive a car in the street... WTH is going on?
what happened to all this 1.10 talk weeks ago?
thank you Kathy
Thanks Katty,for the análisis of Eur/USD,,pls more light on Gold too
Thanks Katty,for the análisis of Eur/USD,,pls more light on Gold's were about.
i would think draghi would like to see a weak euro ...  it would make their goods more competitively priced in overseas markets.
Thanks Kathy. Appreciated your forex analysis.
Balanced and thoughtful..
Thanks Kathy. I have been following your commentaries for a while and must say I always enjoy them.
Thanks Kathy. Would appreciate your analysis on gold too.
Thanks
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