Euro on Standby Ahead of ECB Meeting

Today’s major risk event and potential mover for the Euro will be the highly anticipated European Central Bank meeting.

Although the central bank is widely expected to leave interest rates unchanged, it’s the forecasts for growth and inflation will be under the spotlight. This sentiment in the lead up to today’s decision was fuelled by a report yesterday, claiming that Mario Draghi is set to trim projections on growth and inflation, to justify a fresh round of loans to banks. Should this report become reality and Draghi adopts a dovish tone, the Euro will find itself under renewed selling pressure.

The depressing tone was already set after the January meeting when Draghi then highlighted downside risks to the economy. And since then, the signs continue to point downwards – from Italy being in a technical recession, to Germany, the region’s economic powerhouse, seeing growth shift downwards.

To be sure, the theme of slowing growth is not confined to the EU. China earlier this week revised its growth target, while the US is seeing its fiscal stimulus boost fade, as evident in its 4Q18 GDP figures. Note that this week, the OECD has also lowered its global growth forecasts to 3.3 percent for the year, with the EU shouldering much of that downgrade.

Amid this combination of downside risks and adopting a glass-half-full approach, further losses for the Euro may be limited. In other words, how much more bearish can markets get on the Euro, which is hovering near its lowest since 2017? Hence, anything that can be interpreted as positive out of the ECB today could translate into gains for the common currency.

Focusing on the technical picture, the EURUSD is turning increasingly bearish on the daily and weekly charts with prices trading towards the lower trading band at 1.1300. A dovish Draghi this afternoon is likely to instill bears with enough inspiration to conquer this level. A solid daily close below 1.1300 will signal further downside towards 1.1200.

Currency spotlight – Dollar Index

The Dollar is holding steady above 96.8, even as February’s ADP employment report failed to meet market expectations.

Markets focus will be on February’s non-farm payrolls report due Friday as a further indicator of US economic growth momentum. However, when compared against other major economies, the world’s largest economy appears to be the bright spark in an otherwise gloomy global landscape. To be clear, US economic expansion is expected to slow in 2019, just not as pronounced as other major economies.

In regards to the technical perspective, the Dollar Index is trading in a steady uptrend on the daily charts. A decisive breakout and daily close above 97.00 is seen opening a path towards 97.35.

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