EUR / USD FORECAST: EURO AWAITS ECB DECISION FOLLOWING STRATEGY REVIEW
EUR / USD price action was higher on Wednesday. La main currency pair probably benefited from a broad U.S. dollar weakness thanks to fading greedy worries and improved market sentiment. Euro / JPY gained ground as well, but the Euro fell against most other FX peers with traders focused on event risk presented by the European Central Bank meeting this week.
The ECB tariff decision is scheduled to cross wires on Thursday, July 22 at 11:45 GMT. Christine Lagarde, president of ECB, is due to follow up with a press conference shortly afterwards at 12:30 GMT. Event risk presented by the ECB meeting, which follows its recent review of monetary policy strategy, equates to a relatively high sudden implicit volatile reading for EUR / USD.
In fact, EUR / USD overnight implied a volatility of 7.9% in the high 86th percentage of measures taken over the last 12 months and exceeding its 20-day average reading of 5.4%. This suggests an implicit trading range of 98-pips for EUR / USD. To be fair, however, this seems relatively muted for a decision on a central bank rate accompanied by updated economic projections.
EUR-USD PRICE CARE: EVERY TIME FRAME (01 MARCH TO 21 JULY 2021)
This could be because no real changes to ECB policy are expected to be announced on Thursday. As such, traders will likely pay much attention to previous guidance given in the statement and by ECB president Christine Lagarde. To that end, the review of the ECB’s strategy detailed a change in how the central bank views inflation. Specifically, the ECB now aims to have inflation averaging 2% in the long run, which gives more margin for inflation to exceed.
Details of QE packages deployed by the European Central Bank, which collectively serve as a tool to help fulfill its inflation mandate, will thus see more intense scrutiny after tomorrow’s announcement. This focuses on possible adjustments that could be made to the ECB’s asset purchase program (APP) announced in 2014 or to the pandemic emergency purchase program (PEPP), which will expire in March 2022.
Although there may be some differing opinions at the ECB’s Governing Council on whether or not to reduce housing, there could be a collectively cautious and patient tone conveyed due to the recent swelling in disadvantageous risks to economic performance presented by the delta greedy variant. At the end of the day, the impact on EUR / USD is likely to depend on the balancing act between strengthening the credibility of the ECB and increasing growth, so adjust to the DailyFX page on Real Time for live coverage of the ECB intentional decision and a press conference.
Continue reading – Euro-Technical Analysis: EUR / GBP, EUR / JPY, EUR / USD Tax Outlook
– Written by Rich Dvorak, Analyst for DailyFX.com
Connect with @RichDvorakFX on Twitter for real-time market understanding