- The ECB is expected to introduce changes to its forward guidance.
- Market participants anticipate a dovish tilt on the monetary policy stance.
- EUR/USD could break below March’s low at 1.1703 and enter a mid-term bearish trend.
The European Central Bank will announce its latest decision on monetary policy on Thursday. No changes are to be expected, as after revealing their latest Strategic Review Report, European policymakers made it clear that they won’t be tapering anytime soon.
Symmetrical 2% inflation target
Lagarde & Co revised their inflation target and decided to change the usual “below, but close to 2% target” to a “symmetrical” 2% inflation goal. That means moderate, temporary positive and negative deviations would be tolerated, although they are “equally undesirable,” according to the ECB’s statement.
At this point, the central bank is foreseen keeping the benchmark rate at the record low of 0%, and the PEPP (Pandemic emergency purchase program) unchanged at €1.85 trillion, set to continue until March 2022. The ECB may extend the duration of the program, which should be taken as a dovish shift.
President Christine Lagarde has also noted that they would make some changes to their forward guidance to include the latest changes. Additionally, the coronavirus Delta variant poses a risk to the economic comeback, and policymakers won’t refrain from mentioning it. Overall, market players anticipate a dovish tilt, but most of it has already been priced in. A hawkish stance, on the other hand, will be quite a surprise that will catch investors off guard.
EUR/USD possible reaction
The FX board is being dominated by sentiment, which means EUR/USD is moving on the dollar’s strength or weakness. The ECB could introduce some temporal noise, mainly with a too dovish or a hawkish stance, but could be short-lived. The market will quickly move away from trading the central bank’s decision and return to its previous stance.
Ahead of the announcement, the EUR/USD pair is under strong selling pressure, trading at its lowest in three months. The pair is bearish and poised to retest the March monthly low at 1.1703. Once below the latter, the slump may extend toward the 1.1660 price zone, while reaffirming a mid-term bearish trend. To the upside, the level to watch is 1.1840, as a recovery above it could see the pair approaching the 1.1900 figure.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.