EUR/USD Breakout May Be Imminent On ECB Policy Update

EURO, EUR/USD, EUROPEAN CENTRAL BANK (ECB), LAGARDE – TALKING POINTS:

  • Euro might be coiling up for a breakout on key ECB policy update
  • Top question is whether Largarde & company are ‘dovish enough’
  • EUR/USD chart positioning hints selling pressure may be ebbing

 

 

The Euro has idled even as most of its major counterparts saw violent price moves against the US Dollar. Indeed, even the Swiss Franc – which tends to track closely with the single currency’s moves against the Greenback – has been three times more volatile this week.

This probably reflects traders’ reluctance to commit one way or another ahead of today’s monetary policy announcement from the ECB. The central bank will begin to unveil how the comprehensive policy review that it has just concluded will be reflected in its current posture.

It seems to be a given that the underlying message will be decidedly dovish. The ECB has already increased its inflation target to 2 percent having previously aimed just below that level and promised to be “forceful or persistent” in reaching it.

Central bank President Christine Lagarde fanned the flames of speculation, saying that “interesting variations and changes” are to be expected. She told Bloomberg in an interview that “given the persistence that we need to demonstrate to deliver on our commitment, forward guidance will certainly be revisited.”

WHAT WILL THE ECB ACTUALLY DO?

A number of avenues for change present themselves. The ECB may announce that it will tolerate an inflationary rise that is expected to put price growth north of the target for some time. It might also commit not to hike interest rates at least through 2023, scattering the markets’ bet on a small rise that year.

The fate of the Asset Purchase Programme (APP) – the ECB’s long-running version of QE – and the supplemental Pandemic Emergency Purchase Programme (PEPP) are also on the table. Official changes are due in September, but their direction may be previewed this time around.

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