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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

2016-06-02 07:59:00
Ilya Spivak, Head Strategist, APAC
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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

GMT

CCY

EVENT

ACT

EXP

PREV

23:50

JPY

Monetary Base (YoY) (MAY)

25.5%

-

26.8%

23:50

JPY

Monetary Base End of period (¥) (MAY)

386.7t

-

386.2t

01:30

AUD

Trade Balance (APR)

-1579m

-2100m

-1971m

01:30

AUD

Retail Sales (MoM) (APR)

0.2%

0.3%

0.4%

01:30

JPY

BOJ’s Sato Speaks in Kushiro

-

-

-

05:00

JPY

Consumer Confidence Index (MAY)

40.9

40.1

40.8

European Session

GMT

CCY

EVENT

EXP

PREV

IMPACT

08:30

GBP

Markit/CIPS UK Construction PMI (MAY)

52.0

52.0

Medium

09:00

EUR

PPI (MoM) (APR)

0.1%

0.3%

Low

09:00

EUR

PPI (YoY) (APR)

-4.1%

-4.2%

Low

11:30

USD

Challenger Job Cuts (YoY) (MAY)

-

5.8%

Low

11:45

EUR

ECB Main Refinancing Rate (JUN 2)

0.00%

0.00%

High

11:45

EUR

ECB Deposit Facility Rate (JUN 2)

-0.40%

-0.40%

High

11:45

EUR

ECB Marginal Lending Facility (JUN 2)

0.25%

0.25%

High

11:45

EUR

ECB Asset Purchase Target (€) (JUN)

80b

80b

High

12:30

EUR

ECB’s Draghi Press Conference

-

-

High

14:00

EUR

ECB’s Draghi, Nowotny Speak in Vienna

-

-

Medium

Critical Levels

CCY

Supp 3

Supp 2

Supp 1

Pivot Point

Res 1

Res 2

Res 3

EUR/USD

1.1005

1.1085

1.1137

1.1165

1.1217

1.1245

1.1325

GBP/USD

1.4193

1.4315

1.4365

1.4437

1.4487

1.4559

1.4681

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

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