Good morning traders.
Todays its all about the ECB meeting. The main announcement will be at 13.45 CET with the press conference at 14.30.
The expectations are that Draghi will announce details of new LTROs (long term refinancing operations) and will likely suggest that risks have moved to the downside as the EU continues to miss its inflation targets and trade war tensions heat up between the US and China. He will have in mind Trump´s recent announcement of tariffs on Mexico as a response to non economic issues which brings his willingness to use use tarifs even more firmly to the fore.
This is important for the EU as the US President has already cautioned the EU that tariffs are likely if they cant come to acceptable (to the US) trade terms on Autos and Auto parts. The prospects of tariffs on EU exports in these areas will make for a subdued economic outlook. Protectionism in general will give Draghi cause for concern and any comments in this regard will be closely scrutinised.
With regard to forward guidance on rate policy we already know that any changes (hikes) have been pushed back from the summer of this year to the end of the year. If the ECB make any comment to rates being pushed back even further this could trigger some downside in the eurusd.
While we have had a push up this week on Powell’s comments that he appears to be comfortable to sustain the economy (i.e. USD stock markets lol) by considering ´insurance´ rate accommodation, this move up has given the eurusd room for a pullback to lower levels. Whether Powell has changed his stance or not, the market has taken it as accommodative.
In summary, whether the eurusd appreciates (albeit within the low volatility levels we now have) or pulls back depends on Draghis overall assessment of the future health of the EU. If he adopts an optimistic stance we could see a rise in the pair especially as we have the Fed sounding increasingly dovish and signalling rate cuts to sustain markets.
If the general tone is more pessimistic and in particular if we get a comment on pushing back rate policy to next year, the eurusd could take a hit.
We also need to bear in mind that the EU has triggered disciplinary procedures against Italy over is debt deficit. If you remember I highlighted this as a probably battlefield after the EU elections the other week.
The levels are noted. I would be cautious of taking any trades until after the presser as there is always the likelihood of choppy moves from the announcement to the end of the press conference.
The Day Chart
We have had a decent bounce up since Monday to the trend line we have had on the chart for some time up at the 1.13 level. The boundaries are clear. 1.13 and just above at the 200 sma to the upside and 1.11 below. 1.12 may provide good support should the market take Draghi’s comments as neutral and allow for some modest appreciation back up to test the 1.13.
The Hour Chart
I have noted S1 and R1 at both ends of the range for now. However a better plan would be to watch the context unfold during the day and especially after the ECB to capture what becomes clear – if anything.
Remember we also have NFP tomorrow so the market will have this in mind before and serious move takes place in which case I doubt we will see any range breaking attempts today. But… we watch, wait and engage as appropriate.
Have a good day amigos :).