Previewing Thursday's ECB Decision | FX Research
Later this week on Thursday, we get the European Central Bank policy decision. The overwhelming expectation heading into the event risk is that the ECB will go ahead and cut rates another 25 basis points, bringing the deposit facility rate to 2.5%. Euro area economic activity has been sluggish of late, and the central bank's move to cut rates will help stimulate growth. Indeed, inflation data has also shown signs of easing, which has only helped to strengthen the case for lower rates.
At the same time, the ECB will need to be careful, as underlying inflation pressures remain more resilient. But for now, a path forward in which the ECB is leaning towards lower rates makes sense, especially at a time when the central bank is contending with added stress around trade tension, geopolitical risk, and political shifts in France and Germany.
As far as the market reaction goes, we believe the balance of risk leans towards more Euro upside than downside against the US dollar. We say this because so much bearishness is already priced in, leaving little room for the Euro to trade much lower on confirmation of a dovish decision. This suggests anything that deviates from this expectation could inspire a decent amount of demand. We are already seeing formidable demand from medium- and longer-term players on dips below 1.03.
Exclusive FX research from LMAX Group Market Strategist, Joel Kruger
At the same time, the ECB will need to be careful, as underlying inflation pressures remain more resilient. But for now, a path forward in which the ECB is leaning towards lower rates makes sense, especially at a time when the central bank is contending with added stress around trade tension, geopolitical risk, and political shifts in France and Germany.
As far as the market reaction goes, we believe the balance of risk leans towards more Euro upside than downside against the US dollar. We say this because so much bearishness is already priced in, leaving little room for the Euro to trade much lower on confirmation of a dovish decision. This suggests anything that deviates from this expectation could inspire a decent amount of demand. We are already seeing formidable demand from medium- and longer-term players on dips below 1.03.
Exclusive FX research from LMAX Group Market Strategist, Joel Kruger
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Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.