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ECB Preview - What to expect

ECB Preview - What to expect

The ECB will meet on Thursday but no change to the policy is expected. We can expect some revision in forecasts with the most important being CPI projections. This is because EURUSD has risen to 1.19 from 1.11 when July projections were made. No change in CPI projections will be seen as bullish as this will be a green signal to the market that October meeting will set the tapering policy over the coming months.

In terms of the press conference, ECB president Draghi would use the occasion to remind the market that EUR strength is an impediment to inflation though he may also say that ECB job is not to influence exchange rates. There is also a likelihood that Draghi will play down October meeting being a pre-set to the discussion on tapering. Acknowledging that taper discussion will begin in the October policy meeting is one of the least likely and one of the most hawkish scenarios. However, the short-term risk to EUR remains skewed to the downside from a slightly dovish ECB and lower CPI projection. Overall, medium-term outlook still remains bullish.

Dovish scenario; EURUSD drop to the 1.18-1.1850 area (1-1.25% drop)

Hawkish scenario; EURUSD rises to 1.2150-1.2250 area (1.5-2.5% rise)

Neutral scenario; EURUSD rises to 1.200-1.2080 area (0.5-1% rise)

 

This article is an extended commentary piece from the FXNavigator service. The FXNavigator service provides intraday analysis of 42 currency markets with technical and economic research being updated multiple times per day. The service also includes fully interactive real-time FX charting utilizing TraderMades exclusive database of more than 40 years of data. Contact us at +44 20 8313 0992 or email for further information.

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