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Euro May Face Volatility Despite ECB Inaction

Euro May Face Volatility Despite ECB Inaction

Ilya Spivak,

Talking Points:

  • ECB unlikely to expand stimulus effort at September meeting
  • Updated economic forecasts may foreshadow policy direction
  • Changes in QE-eligible asset mix may trigger Euro volatility

The ECB monetary policy announcement headlines the economic calendar in European trading hours. Euro area financial conditions have stabilized having recovered from stress in the aftermath of the UK “Brexit” referendum. Meanwhile, the year-on-year inflation rate has drifted toward the top the range prevailing since mid-2015 having steadily improved since April. On balance, this hints that policymakers probably don’t feel pressured to expand an already aggressive monetary stimulus effort that includes hefty asset purchases and a negative deposit rate.

The announcement may still generate volatility however. First, the updated set of macroeconomic projections prepared by ECB staff may be telling, with the direction of revisions hinting which way the central bank may steer in the months ahead. A downgrade of the inflation outlook may imply that further easing is on the horizon and weigh on the Euro. Needless to say, an upgrade that undermines the case for near-term stimulus expansion could have the opposite effect.

Second, investors will look for clues about potential changes in policy implementation as ECB President Draghi gives a press conference following the announcement. The central bank is soaking up so much paper as to spark concerns about insufficient liquidity in those assets it has deemed acceptable for purchase. If policymakers’ promise to boost accommodation as needed is to be seen as credible, they may need to expand the range of securities that qualify. Doing so or signaling such a step is imminent may be enough to put pressure on the single currency.

Are retail traders buying or selling the Euro ahead of the ECB announcement? Find out here !

Asia Session

22:55AUDRBA's Lowe Intro Remarks at Conference ---
23:01GBPRICS House Price Balance (AUG)12%2%5%
23:50JPYBoP Current Account Balance (¥) (JUL)1938.2B2073.3b974.4b
23:50JPYBoP Current Account Adjusted (¥) (JUL)1447.8B1573.7b1648.4b
23:50JPYTrade Balance BoP Basis (¥) (JUL)613.9B571.2b763.6b
23:50JPYGDP SA (QoQ) (2Q F)0.2%0.0%0.0%
23:50JPYGDP Annualized SA (QoQ) (2Q F)0.7%0.2%0.2%
23:50JPYGDP Nominal SA (QoQ) (2Q F)0.3%0.2%0.2%
23:50JPYGDP Deflator (YoY) (2Q F)0.7%0.8%0.8%
23:50JPYGDP Private Consumption (QoQ) (2Q F)0.2%0.2%0.2%
23:50JPYGDP Business Spending (QoQ) (2Q F)-0.1%-0.4%-0.4%
23:50JPYBank Lending Incl Trusts (YoY) (AUG)2.0%-2.1%
23:50JPYBank Lending Ex-Trusts (YoY) (AUG)2.0%2.0%2.1%
01:30AUDTrade Balance (JUL)-2410m-2700m-3250m
02:00JPYTokyo Avg Office Vacancies (AUG)3.90%-3.94%
02:35CNYTrade Balance (CNY) (AUG)346.03b373.00b342.80b
02:35CNYExports (CNY) (YoY) (AUG)5.9%2.9%2.9%
02:35CNYImports (CNY) (YoY) (AUG)10.8%0.7%-5.7%
02:41CNYTrade Balance ($) (AUG)52.05b58.85b52.31b
02:41CNYExports ($) (YoY) (AUG)-2.8%-4.0%-4.4%
02:41CNYImports ($) (YoY) (AUG)1.5%-5.4%-12.5%
04:30JPYBankruptcies (YoY) (AUG)14.87%--9.52%
04:30JPYBOJ’s Nakaso Speaks in Tokyo ---
05:00JPYEco Watchers Survey: Current (AUG)45.645.545.1
05:00JPYEco Watchers Survey: Outlook (AUG)47.446.447.1

European Session

06:00EURGerman Labor Costs (YoY) (2Q)-3.1%Low
06:00EURGerman Labor Costs (QoQ) (2Q)-1.7%Low
11:45EURECB Main Refinancing Rate (SEP 8)0.00%0.00%High
11:45EURECB Deposit Facility Rate (SEP 8)-0.40%-0.40%High
11:45EURECB Marginal Lending Facility (SEP 8)0.25%0.25%High
11:45EURECB Asset Purchase Target (SEP)€80b€80bHigh
12:30EURECB President Draghi Holds Press Conference--High

Critical Levels

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

--- Written by Ilya Spivak, Currency Strategist for

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