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Euro May Rise as ECB Policy Announcement Triggers Profit-Taking

Euro May Rise as ECB Policy Announcement Triggers Profit-Taking

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • Euro May Bounce as Status-Quo ECB Announcement Triggers Profit-Taking
  • Bank of England Rate Decision May Amount to Non-Event for British Pound
  • See Economic Releases Directly on Your Charts with the DailyFX News App

Monetary policy announcements from the Bank of England and the European Central Bank headline the economic calendar in the hours ahead. While the former may prove to be a non-event – leaving the British Pound rudderless in the near term – the latter has scope to trigger a response from the Euro despite the absence of materially new policy updates.

BOE officials have signaled they are in wait-and-see mode until the transitory pressure from lower oil prices on headline inflation eases, allowing space for the start of stimulus withdrawal. That points to a status-quo outcome this time around, meaning the central bank probably won’t issue a statement and leave traders to wait for the release of minutes from the sit-down for further guidance.

Turning to the ECB, the introduction of anything particularly novel seems likewise unlikely. The central bank has already announced its intent to launch QE at a pace of €60 billion/month and run the program through mid-2016. Any material changes to the effort will probably have to wait until after at least a few months pass and its efficacy can be preliminarily evaluated.

The passage of key event risk can be market-moving in its own right however, even without the emergence of anything that profoundly changes the fundamental landscape. Indeed, the release of the BOE’s quarterly inflation report last month was just such an instance: Mark Carney and company reminded investors that their desire to raise rates has not changed, revealing that the markets overshot in scaling back tightening bets since mid-2014 and driving Sterling higher.

In the case of the ECB, the absence of anything new in the policy announcement may highlight a lack of fresh fodder to fuel near-term selling pressure. The Euro has been falling alongside front-end bond yields since early May 2014 as trades priced in on-coming easing, putting speculative net-short positioning near the highest on record. In the meantime, the threat of imminent “Grexit” came and went. If investors don’t find another reason to build short positions, they may just begin to take profits on existing anti-EUR bets and send the single currency higher.

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Asia Session

GMT

CCY

EVENT

ACT

EXP

PREV

0:30

AUD

Retail Sales s.a. (MoM) (JAN)

0.4%

0.4%

0.2%

0:30

AUD

Trade Balance (A$) (JAN)

-980M

-925M

-503M

European Session

GMT

CCY

EVENT

EXP

PREV

IMPACT

7:00

EUR

German Factory Orders s.a. (MoM) (JAN)

-1.0%

4.2%

Medium

7:00

EUR

German Factory Orders n.s.a. (YoY) (JAN)

2.6%

3.4%

Medium

7:00

GBP

Halifax House Prices (MoM) (FEB)

-0.2%

2.0%

Medium

7:00

GBP

Halifax House Prices (3M/Y) (FEB)

8.5%

8.5%

Medium

8:30

EUR

Markit Germany Construction PMI (FEB)

-

49.5

Low

9:00

GBP

New Car Registrations (YoY) (FEB)

-

6.7%

Low

9:00

EUR

Italian GDP s.a. and w.d.a. (QoQ) (4Q F)

0.0%

0.0%

Low

9:00

EUR

Italian GDP s.a. and w.d.a. (YoY) (4Q F)

-0.3%

-0.3%

Low

9:10

EUR

Markit France Retail PMI (FEB)

-

44.0

Low

9:10

EUR

Markit Italy Retail PMI (FEB)

-

41.2

Low

9:10

EUR

Markit Eurozone Retail PMI (FEB)

-

46.6

Medium

9:10

EUR

Markit Germany Retail PMI (FEB)

-

52.3

Medium

12:00

GBP

Bank of England Rate Decision

0.50%

0.50%

High

12:00

GBP

BOE Asset Purchase Target

375B

375B

High

12:45

EUR

European Central Bank Rate Decision

0.05%

0.05%

High

12:45

EUR

ECB Deposit Facility Rate

-0.20%

-0.20%

Medium

12:45

EUR

ECB Marginal Lending Facility

0.30%

0.30%

Medium

13:30

EUR

ECB’s Draghi Holds Press Conference

-

-

High

Critical Levels

CCY

Supp 3

Supp 2

Supp 1

Pivot Point

Res 1

Res 2

Res 3

EURUSD

1.0861

1.0985

1.1032

1.1109

1.1156

1.1233

1.1357

GBPUSD

1.5056

1.5176

1.5221

1.5296

1.5341

1.5416

1.5536

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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