The EUR/USD pair trades at its lowest in 7-month ahead of the ECB meeting, in where the Central Bank is largely expected to extend its stimulus program. Last October, Mario Draghi announced that they were willing to review the amount of bond buying, and the market is already expecting a monthly increase of 10/20 billion per month, and a six month extension of the program. Additionally, last week rumors arose that the ECB can turn further negative its deposit rates, currently at -0.20%.
Given that the first possible move has been anticipated two months ago, most of it has been already priced in. The second could be more a surprise, as Draghi said some time ago that he won't cut rates any further. The EUR is generally weak and poised to extend its decline, but the ECB has do more than what investors are expected to actually weaken the currency further, and that could be a 10bp additional cut in the deposit rate.
View the Live chart of the EUR/USD
A dovish announcement should see the pair finally breaking through the 1.0550 support, and drive the pair down to 1.0460/90. Should the ECB fail to deliver, the pair can recover with an acceleration above 1.0630 exposing it to a test of the 1.0700 level.
Considering that the US FED's chair Yellen will testify for a second day after the ECB, and that the US will release the Nonfarm Payroll report on Friday, there is a good chance that market reactions will be limited, as the focus will quickly chance towards a possible US rate hike next December 17.
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