Today we have ECB interest rate decision and later Draghi's press conference which is a big risk event for the euro and it has the ability to move markets more than usual and can initiate some big movements however market expectation for today meeting are very neutral and there is not so much expectation for ECB to act this month as many sees Jun more appropriate for the ECB to take action.

Recent EUR/USD strength has been due to a lot of factors and mainly because:

  1. Capital flow into Euro zone mainly because geopolitical event risk and emerging markets.
  2. Low EU peripheral yields attracting investor for diversification and yield.
  3. US Treasury yields are also dropping and favor in the short term a dollar weakness

We all know by now that ECB doesn't like a higher exchange rate because it contributes to inflation.

ECB reluctance to tame down deflationary pressure is another reason to stay long EUR/USD for the short term. Although inflation figure have been picking up due to Easter time they are still falling behind ECB's target.

  • What to expect from today ECB meeting?

The higher probability is that ECB will hold monetary policy for the time being, using the same rhetoric that higher exchange rate is a problem and it will be a monetary policy concern as it contribute to low inflation. So although the market may be skewed for more upside movement if Draghi will be very dovish and if he'll try to send the message that they will target the link between exchange rates and inflation than that should be very bearish and it could send euro down, so be prepared for both actions.

Best Regards,
Daytrader21
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