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ECB Rate Decision May Matter More for Sentiment vs. the Euro

ECB Rate Decision May Matter More for Sentiment vs. the Euro

Ilya Spivak,

Talking Points:

  • ECB rate decision likely to generate risk-linked vs. Euro-centric impact
  • Readiness to act on stimulus expansion, counter “Brexit” spillover key
  • Aussie and NZ Dollars fell, Yen rose as BOJ’s Sato fueled risk aversion

All eyes are on the ECB interest rate decision in the hours head. The central bank is widely expected to offer no changes to the existing policy mix as President Mario Draghi and company wait to gauge the impact of stimulus efforts announced earlier in the year. This suggests the announcement’s impact will take on sentiment-guiding rather than Euro-specific dimensions.

Traders will probably want to be reassured that further easing options are ready to be deployed if necessary. Growth has slowed and inflation has fallen back into negative territory since the beginning of the year, so policymakers may be expected to show a sense of urgency on this front. This might take the form of setting a timetable for policy reassessment, thereby implicitly signaling when more accommodation might emerge.

Commentary on the potential for spillover in the event that the UK opts to exit the EU at the upcoming referendum may also prove market-moving. While the ECB is unlikely to wade into the politics of the issue, projecting a sense of readiness will matter considering the period of uncertainly following a “Brexit” vote will hamper two-way trade and hurt Eurozone exporters as well as those across the English Channel.

A concretely dovish posture may boost risk appetite, with higher-yielding majors like the Australian and New Zealand Dollars recovering from overnight weakness alongside stock prices. Both currencies slumped while the anti-risk Japanese Yen rose as Asian shares slumped following acutely downbeat comments from BOJ policymaker Takehiro Sato. On the other hand, a status quo wait-and-see posture may prove disappointing and amplify risk-off dynamics.

Are traders long or short the Euro ahead of the ECB rate decision? Find out here !

Asia Session

23:50JPYMonetary Base (YoY) (MAY)25.5%-26.8%
23:50JPYMonetary Base End of period (¥) (MAY)386.7t- 386.2t
01:30AUDTrade Balance (APR)-1579m-2100m-1971m
01:30AUDRetail Sales (MoM) (APR)0.2%0.3%0.4%
01:30JPYBOJ’s Sato Speaks in Kushiro ---
05:00JPYConsumer Confidence Index (MAY)40.940.140.8

European Session

08:30GBPMarkit/CIPS UK Construction PMI (MAY)52.052.0Medium
09:00EURPPI (MoM) (APR)0.1%0.3%Low
09:00EURPPI (YoY) (APR)-4.1%-4.2%Low
11:30USDChallenger Job Cuts (YoY) (MAY)-5.8%Low
11:45EURECB Main Refinancing Rate (JUN 2)0.00%0.00%High
11:45EURECB Deposit Facility Rate (JUN 2)-0.40%-0.40%High
11:45EURECB Marginal Lending Facility (JUN 2)0.25%0.25%High
11:45EURECB Asset Purchase Target (€) (JUN)80b80bHigh
12:30EURECB’s Draghi Press Conference--High
14:00EURECB’s Draghi, Nowotny Speak in Vienna --Medium

Critical Levels

CCYSupp 3Supp 2Supp 1Pivot PointRes 1Res 2Res 3

--- Written by Ilya Spivak, Currency Strategist for

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