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 in December.

Expectation today –

• European Central Bank (ECB) is expected to maintain its current policy in terms of interest rates. However, the market is looking for guidance on future actions especially as the economy cools. The German economy has clearly been signaling a recession in the manufacturing sector.
• With the U.S. Federal Reserve signaling rate cuts, the pressure is on the ECB to act.

What to watch out for –

• Change in inflation and growth forecast.
   
• ECB’s take on the recent slowdown in the Eurozone, especially in Germany, where PMI index has fallen the to 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 with the new Prime Minister Boris Johnson.

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

Impact –

The euro has been gradually moving lower faced with numerous uncertainties such as trade war, Italy vs. Brussels standoff, weakness in the economy, and the possibility of further monetary policy meeting. We expect President Draghi to continue talking dovish and show readiness to ease policy rates if necessary.

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 to the very least. The exchange rate might even decline further towards 1.075 area.