EUR/USD sits in a 19 pips vary on the day
On the whole, markets are in a little bit of a lull as we proceed to attend on the ECB assembly to return later as we speak. We’re seeing some slight greenback weak point in the intervening time however buying and selling ranges stay comparatively slim to say the least and that is encompassed by how EUR/USD is buying and selling thus far.
All eyes will likely be on the ECB assembly later as markets will likely be trying to find clues on which route ought to the pair transfer subsequent from right here. So, what’s priced in and what are we anticipating from Draghi and co. later?
For starters, a downgrade to the central financial institution’s workers financial projections is anticipated – each the expansion and inflation forecasts. It would then come all the way down to how does Draghi wish to play this out. If he continues to reiterate that the dangers are attributed to momentary components and that they’re nonetheless assured of reaching their inflation goal, that’s nearly as good as euro bulls would get from Tremendous Mario as we speak.
On the flip aspect, he may take a extra dovish strategy and emphasise on these dangers related to the downgrade. I reckon that’s what markets expect to occur to maintain the euro the place it’s now on the very least.
The opposite key factor to look out for will likely be any potential adjustments to the speed/ahead steering. I do not consider this can come about given latest commentary by ECB members however you by no means know. Regardless of the central financial institution stating that they do not see charges shifting till by the summer time of this yr, markets are solely pricing in a 15 bps price hike round after the center of subsequent yr:
The ultimate factor to pay attention to is on any point out of TLTRO discussions. That is seen as an added measure to bolster assist for the Eurozone economic system and is prone to be taken in a optimistic method. Nevertheless, on condition that the ECB has talked about beforehand that they’ve time on this, I might anticipate particulars to be stored to a minimal in order to not throw a curveball to markets in the interim.
Given all of the above components, the bar is ready moderately low for the euro to assemble some bids from the assembly. Latest financial knowledge has been a bit of bit higher as nicely and that might be one thing the ECB alludes to later as we speak to assist information markets. Although the expectation stays that they need to nonetheless reserve a extra cautious tone and never change the ahead steering as markets aren’t actually pricing in any price hikes for this yr anyway, which provides them time to regulate it later if want be.