ECB Rate Decision, Monetary Policy Statement and Press Conference due for Thursday the 3rd of December at 12:45 UTC and 13:30 UTC Time respectively.
Markets expects ECB will act with additional QE tomorrow, yet unknown how Dovish ECB President Draghi will sound during the Press Conference after today’s weak inflation reading as indicated via the Consumer Price Index release coming at 0.1% versus the forecasted 0.2%.
The Majority of Economic Analysts are pointing towards four possible case scenarios ECB could proceed with to add additional stimulus via the Quantitative Easing program and help the EU Inflation pick up.
As we have mentioned earlier via our USDX and USDPLN | Technical & Fundamental Outlook article posted at November the 26th of 2015 we cited the following case scenarios.
The first case scenario which seems more likely currently is the case that the ECB will proceed with adding additional pressure to EU Banks reserves parked with ECB and cut the deposit rate further down to -0.4% from -0.2% as of today.
The second scenario coming in next, would be to increase the 60bn EUR monthly Purchase Program of QE to 75bn EUR per month.
The third scenario and currently unlikely would be the case to announce that the Purchase Program will run for another six months in addition to the September 2016 expiry as of today.
The fourth and last case scenario would be that ECB will be buying from EU Banks non-performing loans. Yet we believe the case is still out of a possible call for now.
As all case scenarios should provide additional pressure to the EURUSD currency pair, we expect that the first case should create during the event new lows in EURUSD and then help it to extend higher while all other scenarios or a combination of two or more cases should keep the EURUSD under pressure.
While we firmly believe Technical Analysis is always a step ahead of Fundamental Events and thus Fundamentals usually act as a catalyst to move the market towards the predefined direction, therefore regardless the ECB event, we see a very mature cycle in EURUSD with new lows showing lack of momentum but it has not shown that it’s over yet. While below 12.1.2015 (1.0634) and more importantly below 11.19.2015 (1.0763) pair should ideally make another low to complete a possible Ending Diagonal structure from 11/12 peak and then turn higher in 3 waves at least. Worth to mention that break and hold below diagonal lower trend line or momentum (RSI) divergence getting erased at new lows could see the pair extending to 1.0413 area before bouncing.
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Trade Safe & Good Luck
Spiridon C. Dalietos