ECB Monetary Policy Meeting: Another one bites the dust

• The ECB is likely to maintain the status quo yet also pave the wave for more stimulus in December.
•  Ongoing pandemic developments will overshadow updates on growth and inflation for the EU.
• EUR/USD is gaining bearish momentum, and about to challenge the base of its monthly range.

The Governing Council of the European Central Bank is having a monetary policy meeting this Thursday, and pressure mounts on policymakers to provide additional support to the battered Union. However, it seems unlikely that the central bank will act this time. Instead, President Christine Lagarde could pave the way for action in December.

The pandemic controls central bank decisions

The Pandemic Emergency Purchase Programme (PEPP)  currently stands at €1.35 trillion and was launched in March, to counter the risks related to the coronavirus pandemic. The main rate stands at 0.0% while the deposit rate has been slashed to a record low of -0.5%.

The Northern hemisphere summer brought some relief, but as good weather receded, so did economic momentum. Softening macroeconomic figures have coupled with resurgent outbreaks throughout the region. Several countries are reporting record COVID-19 new daily cases, well above the peaks from March/April. National lockdowns have become a real possibility, as curfews are doing little to stop the spread. In this scenario, fears are of another economic setback in the final quarter of the year, and hence, more support coming from central banks and governments.

Tepid macroeconomic numbers set to worsen

The ECB decision will be out one day ahead of the EU’s Q3 Gross Domestic Product. The latest growth figures showed that in the three months to June, the EU GDP contracted a record 11.8%. Previsions suggest a bounce in the reported quarter, with the economy seen growing 9.2% in the three months to September. However such bounce has become an old story, overshadowed by the latest covid outbreaks.

Meanwhile, inflation has fallen off policymakers’ radar. The Union’s Consumer Price Index stands at deflationary levels, as it printed at -0.3% YoY in September. On Friday, the EU will report the preliminary estimate of October data, but annual inflation is expected to have held at -0.3%.  Instead, Lagarde & co have changed the main focus to employment, hinting that they may let inflation overshoot to help the job sector pick up, aligning with the US Federal Reserve.

EUR/USD levels to watch

In anticipation of the announcement of new restrictive measures, the EUR/USD pair is nearing October monthly low at 1.1688. It has been ranging for the fourth consecutive week, with the top of such a range set at 1.1880. 

Technical readings in the daily chart favor a bearish extension, as the pair is back below its 20 DMA, accelerating its slump. The 100 DMA currently stands at around 1.1640, partially losing its bullish strength. Technical indicators, in the meantime, gain bearish strength, although within neutral levels.

A steeper decline could be expected if the pair falls below 1.1680, approaching then to the 1.1600 area. An immediate relevant resistance level comes at 1.1800, yet only beyond 1.1870, the pair could enter a bullish path, a quite unlikely scenario at the time being.