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#1 09-09-2020 10:43:08

johnedward
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EUR/USD: tone of Thursday ECB meeting will be under scrutiny

EUR/USD: tone and language of Thursday ECB meeting will be under scrutiny


The euro is retreating into a technical support zone (or a safeguard zone, depending on the case), while the debate around and within the institution is intensifying in the face of the recent appreciation of the euro and deflationary pressures, and Christine Lagarde could give some indications intended to calm the movement on currencies. However, few economists expect major decisions to be made. Verdict later today (Thursday).

Frank Dixmier, Global CIO Fixed Income of Allianz Global Investors, says: "The European Central Bank's back-to-school meeting should be less rich in announcements than the US Federal Reserve's speech in Jackson Hole. Its strategic review is not expected until next year, and the latest figures for recovery or inflation do not seem to justify further monetary policy measures at this stage."

"It is nevertheless likely that the Central Bank will amplify its action in the coming months," adds Mr. Dimier, who says: "The new measures could include an extension of the amounts of the PEPP, which the ECB considers to be its most effective tool, or a modification of its parameters, which can be adjusted at any time. More favourable conditions on T-LTROs also seem to us to be possible. On the other hand, a drop in the deposit rate, which would revive the sensitive debate on negative interest rates, seems to us more difficult to anticipate".

Valentin Bissat, economist and strategist at Mirabaud, says: "By the end of the year or early next year, the ECB could increase the size of its asset purchase program (APPP) and extend its duration (currently until June of next year) in order to fulfil its mandate. Even if such discussions do not take place within the ECB for the time being, the change in the Fed's monetary policy framework (average inflation and emphasis on employment) will surely raise questions for an institution that pursues a single mandate based on an inflation rate close to but below 1.9%".

Risk appetite, the breeding ground for the growth of the euro/dollar, will also have to be analysed in the light of the progress made in the search for a vaccine against the virus, even though one of the most advanced products to date, AstraZeneca's vaccine developed in partnership with Oxford University, is temporarily halting its development process, in the middle of Phase III.

In terms of statistics, the "upward" revision, with quotation marks, of the drop in GDP in the Euro zone in Q2, to -12%, compared to -12.2% in the first estimate, is to be noted for Tuesday. In addition, traders have taken note of the passage of the NFIB indicator of the health of small businesses beyond 100 points, beating the target.

Right now, the pair is trading at around $1.1787.

MEDIUM-TERM FORECAST

With regard to the key graphical factors we have mentioned, our opinion is neutral in the medium term on the pair's exchange rate.

We will maintain this neutral opinion as long as the pair remains between support at $1.1745 and resistance at $1.2000.

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