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EUR/USD Outlook: ECB Must Act Decisively as Recession Looms and Markets Collapse

EUR/USD Outlook: ECB Must Act Decisively as Recession Looms and Markets Collapse

2020-03-12 11:00:00
Nick Cawley, Strategist

ECB Meeting and EUR/USD Price, News and Analysis:

  • The ECB must use all tools available to battle the effects of the coronavirus pandemic.
  • EUR/USD likely to be extremely volatile post-ECB announcement.

EUR/USD Traders Wait for Seminal ECB Meeting

As the coronavirus pandemic continues to wreak havoc with countries across the globe, a clutch of G7 central banks have already cut interest rates and provided additional liquidity for their economies to try and re-boot output and prompt spending. It is now the turn of the ECB to act, and any sign of wavering or half-hearted attempts to boost the single-blocs economy may well see the Euro come under increased selling pressure.

Live Data Coverage – ECB Rate Decision Webinar

In late-July 2012, the then President of the ECB, Mario Draghi, told a conference in London that in order to protect the Euro, the central bank would do ‘whatever it takes to preserve the Euro’, adding forcibly ‘And believe me, it will be enough’. This stance, and the quantitative easing program that followed, helped to shore up confidence in the single currency and eventually boost its value in the foreign exchange markets. Now current ECB President Christine Lagarde must follow in Draghi’s steps and the central bank must do whatever it can to protect the Eurozone, albeit with limited resources. Interest rates need to cut further into negative territory, the bond buying program (QE) needs to be increased, country issuer limits need to be raised, the TLTRO program needs to be boosted and additional liquidity needs to be found to help companies struggling against the coronavirus breakout.

Most importantly, President Lagarde must gain the market’s confidence, prove that she is in control and is prepared to do ‘Whatever it Takes’.

ECB Could Double Down on TLTROs to Combat Coronavirus Market Meltdown

After spiking to just under 1.1500 on Monday, EUR/USD has seen a sharp correction lower and now trades in the low 1.1225s as sellers take control of the market. The latest weakness in the pair stems from both a stronger US dollar and market expectations that the ECB will act decisively today and loosen monetary conditions further. Initial support is seen around the 1.1185-1.1187 area although this may not hold if the ECB go all in. Volatility is expected to remain at recent extreme high levels and the pair may see choppy trading during the ECB Press Conference from 13:30 GMT onwards.

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EUR/USD Daily Price Chart (May 2019 – March 12, 2020)

EUR/USD Outlook: ECB Must Act Decisively as Recession Looms and Markets Collapse

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EUR/USD BEARISH
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of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 12% -7% 1%
Weekly 16% -4% 4%
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Traders may be interested in two of our trading guides – Traits of Successful Traders and Top Trading Lessons – while technical analysts are likely to be interested in our latest Elliott Wave Guide.

What is your view on EURUSD – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.

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

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