ECB President Mario Draghi

April 26 – Economic Events Outlook – Can ECB Support Weaker Euro Today?

Posted Thursday, April 26, 2018 by
Arslan Butt • 2 min read

Good morning, traders. The ECB will be giving a monetary policy decision along with a presser shortly after the statement. There is, therefore, a very good opportunity that the single currency, the euro, will get a major volatility boost. If you’re thinking to trade this ECB rate decision and you’re wondering what’s expected this time, then you better read this update…

Watchlist – Key Economic Events Today

Eurozone – EUR

ECB Monetary Policy Event – Today, the European Central Bank will release the minimum bid rate at 11:45 (GMT) along with a press conference at 12:30 (GMT). Let’s review the previous policy meeting.

As expected, the ECB left its policy rates unchanged at:

  • Refinancing rate at 0.00% (Dovish)
  • Marginal lending rate at 0.25% (Dovish)
  • Deposit rate at -0.40% (Dovish)

Economic Projections

  • Growth projections upgraded. (Dovish)
  • Inflation forecasts downgraded. (Hawkish)
  • Mario Draghi: Policy accommodation still needed to sustain inflation momentum. (Dovish)

Overall, the monetary policy report was less hawkish than dovish, hitting the euro hard.

What to Expect from the ECB Today?

The ECB is widely expected to keep the interest rate on hold at 0.00%. However, the presser by Draghi will surely move the euro. We need to see what Mario Draghi has to say about the bond-buying programs. In the previous meeting, Ewald Nowotny and Benoit Coeure hinted that they are cool with taping down their QE (Quantitative Easing) and tightening their rates a bit. But Mario Draghi is the only one opposing the tapering thing.

This morning, I was analyzing the macroeconomic events of the Eurozone and this is what I found:

  • German Retail Sales m/m fell by -0.7%
  • Final CPI y/y slipped to 1.1% from 1.2%
  • German ZEW Economic Sentiment plunged to 5.1 vs. a previous figure of 17.8.
  • French Flash Manufacturing PMI down to 53.6 from 55.9
  • German Flash Manufacturing PMI dropped to 58.4 from 60.6.
  • German Flash Services PMI fell to 54.2 from 55.3.
  • Spanish Flash CPI y/y 1.2%, missing the expectation of 1.5%.

Okay, all I’m seeing is the series of negative economic events, which is clearly signalling a slowdown in the economy. Do you think Mario Draghi will cut down the bond-buying program? I don’t think so.

 

Now let’s speak about the EUR/USD.

In my opinion, the EUR/USD is falling for two reasons:

1- Stronger dollar, for sure.

2- Market sentiments – By now, it’s logical to expect dovishness from the ECB. So, investors are selling the rumours to buy the fact. They seem to price in dovish policy, and we may see a bullish reversal in the euro if this policy meeting reveals a less dovish tone than expected. Well, let’s see what happens next. But it’s going to be really exciting to watch this movement. Good luck for today and don’t forget to apply risk management to your trading.

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About the author

Arslan Butt is our Index & Commodity Analyst
Arslan Butt is our Lead Commodities and Indices Analyst. Arslan is a professional market analyst and day trader. He holds an MBA in Behavioral Finance and is working towards his Ph.D. Before joining FX Leaders Arslan served as a senior analyst in a major brokerage firm. Arslan is also an experienced instructor and public speaker.
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