The ECB meets tomorrow and no changes are expected in interest rates. President Draghi’s statements will receive much attention of course, in an environment of slightly better than expected macro data and rising global trade tensions and political conflicts.
Having pushed out rate hike guidance and announced fresh stimulus with another long-term refinancing operation (TLTRO-3) in March, markets are expecting more details on the latter. The focus here will be on the interest rate of the loans and any incentives attached, as this will determine take-up rates and whether the initiative actually works.
We note there is some uncertainty around this meeting which has been reflected in recent comments from ECB members. Positive GDP figures and employment growth have come in contrast to poor PMI data, plus increased external risks. Most analysts expect a dovish assessment of developments and an indication that the bank remains open to deploying 'whatever policy tools are necessary' to boost inflation if and when required.
Interestingly, President Draghi only has three more meetings left after this one so who takes the helm will garner increased attention in determining the relevance of what Draghi does between now and October.
Here are the numbers to know ahead of the statement at 11.45 GMT and President Draghi’s press conference at 12.30 GMT:
EUR/USD has squeezed quickly higher over the last few sessions as US yields have plunged and Eurozone-US spreads have narrowed. In fact, Monday’s gain was the largest 1-day advance in more than 4 months. Speculative sentiment remains strongly bearish with the largest net short in EUR since late 2016.
Short-term momentum indicators have improved in the world’s most heavily traded pair. Key resistance is being tested at 1.1265 with the 100d MA also capping prices yesterday around 1.1277. A daily close above this area could see further gains to 1.1323, 1.1370 (200d MA) and then 1.1420. Support remains at 1.1110/00.
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