The decision of the European Central Bank on monetary policy in the Eurozone with the press conference of Christine Lagarde will take place today. Investors are wondering whether the ECB will respond to the change in Fed rhetoric on inflation and how it will approach the sustainability of the economic recovery in Europe. All this may have an impact on the EUR/USD exchange rate and shares listed on European exchanges.
Traders expect the EUR/USD pair, measured by the currency options market, to change by 70-80 pips. With a price of 1.1820, this could mean a potential upward movement of 1.1900 or a downward movement of 1.1740. In either case, the price may not reach the key levels resulting from the consolidation that has been taking place here since early August. In other words, the ECB would have to surprise the market very much for a significant breakout from the consolidation in which the EUR/USD pair seems to have been moving for a month and a half.
The ECB is currently not expected to make any major changes to its current position, but the central bank is likely to extend or increase the amount for which it buys the assets. Regarding other monetary policy parameters, most investors believe that the central bank will wait until December for a possible policy change.
The ECB will publish new economic forecasts today. Since the last meeting, the data indicated a slowdown in economic recovery, the euro has strengthened, and the eurozone has plunged into deflation.
There were also statements that the euro had strengthened significantly against the US dollar. According to the ECB's chief economist, this could have a negative impact on economic growth, export performance and inflation, lowering it. The issue of verbal intervention will be awaited at the press conference that will start at 2:30 p.m. At that time, reference couldan also be made to the issue of averaging the target for inflation, in the footsteps of the Fed.
To sum up, the ECB may extend the time or change the amount of the purchase of assets, mentioning the strength of the euro and low inflation. However, averaging the inflation target could be too bold, because then interest rates in the Eurozone would remain very low for many, many years.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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