ECB Preview: Draghi has the last saying, but his hands are tied

On Thursday the European Central Bank will have a monetary policy meeting, although seems unlikely the Central Bank will announce a shift in its actual policy. The ongoing uncertainty about the upcoming elections in most major local economies is pushing monetary policymakers into cautious mode.

There are other reasons that suggest that Draghi and Co. will maintain the status quo. The first one is that there have been no significant changes in inflation since the previous meeting. Indeed, headline CPI rose to 2.0% in February, its highest in four years, although core inflation that excludes volatile components such as energy and fresh food, remained unchanged at 0.9% for a third consecutive month, supporting ECB's view that the uptick in inflation is due to temporal factors.

The other reason has been provided by President Draghi, who repeatedly said that the committee has not discussed any form of tapering, while adding that facilities will remain in place until the end of his mandate, in 2019.

On the other hand, the EU economy has been showing signs of steady recovery since late 2016, and those pressuring Draghi to retrieve QE have now stronger arguments. Furthermore, the ECB has scaled back its monthly bond purchases from €80bn to €60bn from April, fueling speculation Draghi could not ignore German's pressures, neither improving economic conditions.

Additionally, the central bank will release new economic forecasts. GDP will be likely revised higher, given the latest developments, although the inflation outlook may remain unchanged.

So what would it be? More holding on the status quo or the beginning of normalization in monetary policy? An educated guess is that the ECB won't shift bias, but probably sound a bit more optimistic on the economic conditions. Would that be enough to revive the common currency? Maybe, but just temporarily, considering upcoming elections in the region, and the more imminent US Nonfarm Payroll report and the possibility of a US rate hike next week.

EUR/USD levels to watch

The EUR/USD has been pretty inactive these last couple of weeks, trading within 200 pips between 1.0500 and 1.0700, although lower highs daily basis and the price being unable to surpass a bearish 100 DMA, currently at 1.0610, support a bearish breakout. The critical support for the upcoming sessions comes at 1.0490, where the pair bottomed twice during these last weeks, with a break below it opening doors for a decline down to 1.0420/50. A larger slide seems unlikely ahead of Friday's US employment report. 

In the case of an upward move following Draghi's words, the key resistance to take care of is the 1.0630 price zone, as selling interest has been steadily rejecting advances from the region, since mid February. Beyond it, the rally can extend up to 1.0700/20, the next line, and a stronger one, of sellers. The only scenario in which the pair can run beyond this last, is if ECB's Draghi actually announces tapering or rate hikes from current negative levels.