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22 Oct 2015
ECB meeting preview: What to expect of EUR pairs?
FXStreet (Mumbai) - The EUR is on the back foot against most major currencies, except the Canadian dollar, ahead of the European Central Bank (ECB) rate decision, which will be followed by the Draghi’s press conference.
ECB to hold rates steady, Draghi likely to stay non-committal
The bank is widely expected to keep the interest rates and its QE program unchanged, however, speculations have been on the rise since late September/early October that the ECB may hint at a possible extension/expansion of its QE program.Even the talk of a cut in the deposit rates hit the wires every now and then in the last few days.
The consensus estimate is that Draghi would stress readiness to do more (QE and/or rate cuts) if required and jawbone the EUR, but shall not commit a move in December. Last week, the German bund yields had dropped to two-week lows on expectations that Draghi may hint at more easing in December. However, yields quickly recovered on Tuesday and have stayed relatively calm.
The overall action in the markets is nothing compared to the one seen in Nov/Dec 2014, when the talk of the ECB QE was hot and the bond yields across the Eurozone were hitting record lows every week. Nevertheless, the global slowdown in more pronounced now and the Fed rate hike bets have dropped, hence the consensus that ECB would maintain highlight dovish stance but shall stay non-committal.
As for the EUR, a highly bearish outcome would be a hint of more easing in December. On the other hand, the shared currency could cheer a non-committal stance. Moreover, the dovish stance may have been priced-in by the markets - drop in the EUR/USD and bund yields since last Thursday.
Heading into the event, the EUR appears weak against the GBP and the USD. Losses could be sharp in case Draghi drops a bomb. On the other hand, the EUR could spike against the commodity dollars – CAD, AUD, and NZD in case Draghi stays non-committal.
EUR/USD Technical Levels
At the moment, the pair is hovering around 1.1310 levels. The immediate support and resistance is seen at 1.1292 (23.6% of 1.3994-1.0457) and 1.1433 (100% exp of Jul 2008 high-Oct 2008 low-Dec 2009 high) respectively. Talk of rate cut/QE in December by Draghi could trigger a break below 1.1292 and push the spot lower to 1.1088 (50% of Mar to Aug rally). On the other hand, a non-committal, but dovish stance by Draghi could trigger a minor drop to 1.1263 (50-DMA), which could be followed by a rise to 1.1433. A break above the same would expose 1.15 handle.
ECB to hold rates steady, Draghi likely to stay non-committal
The bank is widely expected to keep the interest rates and its QE program unchanged, however, speculations have been on the rise since late September/early October that the ECB may hint at a possible extension/expansion of its QE program.Even the talk of a cut in the deposit rates hit the wires every now and then in the last few days.
The consensus estimate is that Draghi would stress readiness to do more (QE and/or rate cuts) if required and jawbone the EUR, but shall not commit a move in December. Last week, the German bund yields had dropped to two-week lows on expectations that Draghi may hint at more easing in December. However, yields quickly recovered on Tuesday and have stayed relatively calm.
The overall action in the markets is nothing compared to the one seen in Nov/Dec 2014, when the talk of the ECB QE was hot and the bond yields across the Eurozone were hitting record lows every week. Nevertheless, the global slowdown in more pronounced now and the Fed rate hike bets have dropped, hence the consensus that ECB would maintain highlight dovish stance but shall stay non-committal.
As for the EUR, a highly bearish outcome would be a hint of more easing in December. On the other hand, the shared currency could cheer a non-committal stance. Moreover, the dovish stance may have been priced-in by the markets - drop in the EUR/USD and bund yields since last Thursday.
Heading into the event, the EUR appears weak against the GBP and the USD. Losses could be sharp in case Draghi drops a bomb. On the other hand, the EUR could spike against the commodity dollars – CAD, AUD, and NZD in case Draghi stays non-committal.
EUR/USD Technical Levels
At the moment, the pair is hovering around 1.1310 levels. The immediate support and resistance is seen at 1.1292 (23.6% of 1.3994-1.0457) and 1.1433 (100% exp of Jul 2008 high-Oct 2008 low-Dec 2009 high) respectively. Talk of rate cut/QE in December by Draghi could trigger a break below 1.1292 and push the spot lower to 1.1088 (50% of Mar to Aug rally). On the other hand, a non-committal, but dovish stance by Draghi could trigger a minor drop to 1.1263 (50-DMA), which could be followed by a rise to 1.1433. A break above the same would expose 1.15 handle.