EUR/USD – Calm Before the Storm? Euro Steady Ahead of QE Decision

EUR/USD is showing little movement on Wednesday, as the pair trades in the high-1.15 range in the European session. There are no Eurozone releases today, but the markets will be counting down the hours until the ECB policy meeting on Thursday, which is likely to see a QE announcement. In the US, it’s been a very quiet week. We’ll get a look at the first major events of the week, with the release of Building Permits and Housing Starts for December. The markets are expecting slight improvement from both indicators.

As the markets nervously eye the ECB policy meeting on Thursday, is this the calm before the storm? On Wednesday, French President Francois Hollande stated flat out that the ECB will announce a quantitative easing package at the ECB meeting. However, now that a QE is likely priced in, the question remains what will be the size of the program? The markets are anticipating QE of between EUR 500-600 billion, but some market players are saying that the ECB could go as high as EUR 800 billion. Will the euro take a hit on Thursday? The likelihood is yes, unless the ECB surprises with a “QE lite”, such as EUR 300 billion, which would be well below expectations.

There was excellent news out of Germany on Wednesday, as ZEW Economic Sentiment climbed to 48.4 points, crushing the estimate of 40.1 points. This marked the indicator’s highest level in 11 months, pointing to strong optimism among German investors and analysts. Eurozone Economic Sentiment, improving to 45.2 points. This easily surpassed the forecast of 37.6 points. The news was not as positive on the inflation front, as German PPI dropped 0.7%, its worst showing since April 2009. With the Eurozone struggling with deflation, there is growing expectation that the ECB will announce a QE package at its policy meeting on Thursday.

EUR/USD 1.1571 H: 1.1588 L: 1.1542