EUR/USD – the world’s most liquid and heavily traded currency pair – will be in forex traders’ crosshairs over the next 24-hours with interest rate decisions and monetary policy updates from the European Central Bank and the Federal Reserve.

Euro currency volatility is expected to rise materially from recent levels judging by EUR/USD overnight implied volatility of 10.1%, which is the highest measurement since September 11 and compares to its 20-day average reading of 4.3%.

The jump in EUR/USD overnight implied volatility is due largely to heightened uncertainty that typically surrounds central bank meetings and could put the Euro at risk with this being ECB President Christine Lagarde’s first time steering the central bank after taking over reigns from her predecessor Mario Draghi this past October.

EURO CURRENCY INDEX PRICE CHART: DAILY TIME FRAME (MAY 07, 2019 TO DECEMBER 11, 2019)

(Click on image to enlarge)

Chart created by @RichDvorakFX with TradingView

EUR price action has fluctuated within a choppy trading since Draghi’s farewell ECB meeting, which appears to have resulted in the Euro Currency Index (EXY) coiling into a bearish pennant chart pattern. The ECB is overwhelmingly expected to leave its benchmark interest rate – the deposit facility rate – unchanged at its current level of -0.50% as the global rate cut cycle takes a pause.

Correspondingly, Euro outlook will likely hinge on forward guidance provided by ECB President Lagarde during her press conference Thursday at 13:30 GMT in Frankfurt, Germany shortly after the December ECB decision press statement crosses the wires at 12:45 GMT.

Lagarde faces a divided ECB Governing Council which could make it difficult for the central bank to find common ground and effectively conduct monetary policy. Another theme to watch for out of the December ECB meeting is how much pressure the ECB attempts to place on EU governments to boost fiscal spending and take on some of the economic stimulus burden recently shouldered by global central banks.

Similarly, commentary from ECB’s Lagarde on the Eurozone economy as a whole and downside risks that the bloc faces – such as the outstanding probability of a hard Brexit or a flareup in economic relations that turns into a full-blown trade war between the EU and US.