FxWirePro: ECB monetary policy preview

Today European Central Bank (ECB) is to provide further guidance in policy meet. Result to be announced at 11:45 GMT, followed by a press conference at 12:30 GMT. The meeting is to be held at the ECB headquarter in Frankfurt.

Current policy measures–

• Deposit facility rate at -0.40 percent
• Refinancing rate 0.00 percent
• Marginal lending facility rate at 0.25 percent
• ECB has several TLTROs in its portfolio.
• ECB ended its securities purchase program last year.

Expectation today –

• European Central Bank (ECB) is expected to maintain its current policy in terms of interest rates.
• The market is looking for guidance on future actions especially as the economy cools.

What to watch out for –

• Change in inflation and growth forecast.
   
• ECB’s take on recent slowdown in the Eurozone, especially in Germany, where PMI index has fallen to the lower 40s, suggesting sharp contraction.

• ECB’s take or probable actions facing trade tensions with the United States as Trump administration is inching closer in putting tariffs on imported cars.
   
• ECB’s measures against disorderly Brexit.

• Whether ECB seems comfortable with the level of the Euro or does Draghi talk the currency down.

Impact –

The euro is consolidating in a range of around 600 pips (1.12-1.18) since May 2018. The focus is clearly on the European Central Bank (ECB), as the market is looking for clear guidance.

However, faced with numerous uncertainties such as trade war, Italy vs. Brussels standoff, weakness in the economy, President Draghi is likely to continue talking dovish and show readiness to ease policy rates if necessary.

The euro is likely to move lower as a stronger euro is in the least interest of German exporters. We at FxWirePro remain long-term short in euro since 1.21 against the USD and expect the exchange rate to move to as low as 1.095 area.

The euro is currently trading at 1.127 against the USD.