ECB rate decission preview

The European Central Bank is set to announce a restart of it's asset purchasing program and a rate cut of at least 10-bps. Overnight index swaps are currently pricing in a 100% chance of a 10-bps rate cut and a 46% chance of a 20-bps rate cut.Overall, there is a 78% chance of a 20-bps rate cut later today.

Reuters informed that 80% of the economists it polled are skeptical about the bank's ability to influence inflation over the medium term.

On Wednesday the Euro dropped 0.5% against the US Dollar ahead of today's interest rate policy decision. The question is if this highly anticipated rate cut is already priced in the market? And if so, should the stimulus package disappoint investors, would the Euro rally above 1.10 against the US Dollar?

Right now the EURUSD is trading around the 1.1025 almost flat for the day (+0.13%) in the midst of Mario Draghi's press conference. A rally above 1.11 would break the inmediate bear structure and could catapult the EURUSD to retest previous base around the 1.18/20 level. But a stimulus package, no matter its size, is bearish for the EURO so if the Euro rallies against the US Dollar on missed expectations it could be short lived and a good opportunity to sell the Euro at a better price.

EURO

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