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.
• Assets can be bought at yields below the deposit rate.
• In the latest action, ECB tapered asset purchases to €30 billion and extended the program until September 2018. ECB will wind up its asset-buying program this year.

Expectation today –

• European Central Bank (ECB) is expected to maintain its current policy in terms of interest rates.
• However, the market's participants are expecting a further tapering of the asset purchase rate.
• The market is looking for a guidance on future actions and a bit desperately.

What to watch out for –

• Change in inflation and growth forecast.
   
• Take on tapering or on the future path of monetary policies.

• The high level of NPLs in European banks, especially in Italy.
   
• Political trouble in Italy, where populists have won the majority of the votes.

• Contingency plans for a wide-scale trade war.

• Contingency plans from the Brexit fallouts.

• 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 500 pips (1.13-1.18) since May 2018. The focus is clearly on the European Central Bank (ECB), as the market is looking for a clear guidance.

However, faced with numerous uncertainties such as trade war, Italy vs. Brussels standoff, and as it has time till the end of the year, President Draghi is likely to dodge questions on the exact timing of the first rate hike.  The euro is currently trading at 1.162 against the USD.