Currency Analyst since 2010

EUR: get ready for the ECB meeting

   Elizaveta Belugina

Last week EUR/USD closed below 1.1210 (61.8% Fibo of the 2000-2008 move). This week this area acts as resistance.

As the European Central Bank has announced 1.1 trillion euro ($1.23 trillion) bond-buying quantitative easing program (QE) in January and pledged to conduct in until Sept. 2016, its policy direction is in general clear to the market. As a result, the impact on the meeting on the euro probably won’t be very strong.

Still, the market players want more details about the European QE. The ECB promised to purchase 60 billion euro of securities per month and traders want to see if and how the central bank manages to buy this amount.

Taking into account the recently improved data from the euro area, the expected effects of the loose monetary policy, as well as those of the lower euro and oil prices, the ECB’s President Mario Draghi can provide a more optimistic growth outlook. However, to justify QE the central bank’s inflation forecast may deteriorate in comparison with December estimate. If inflation forecast is revised up, the euro would jump in the short term as in this case the market will start speculating that QE may end earlier than in Sept. 2016. Another thing to watch will be the signs of whether the ECB plans to restore Greek banks’ access to open-market operations.

In case of a short squeeze EUR/USD will find resistance in the 1.1360 area. Support is at 1.1100 and 1.1000. Still, as the ECB will start buying bonds this month, it will limit demand for the euro in any case. It also seems that the expectations of the Federal Reserve’s rate hike are now more important for EUR/USD than news out of the euro area. As a result, the best trading strategy should be selling on the pair’s attempt to recover to 1.14.

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