- Three top-tier events in Europe, the US, and the UK await traders.
- Here is a quick guide to what to expect from the ECB, the Fed, and the Brexit Summit.
Here the three events, each one with its three scenarios.
1) ECB Meeting
The announcement is at 11:45 GMT, press conference at 12:30.
The European Central Bank convenes on Wednesday for a change amid an ongoing slowdown. The ECB already pushed back on its intentions to raise rates, slashed economic forecasts, said that risks are tilting to the downside and that a new funding scheme, the TLTRO is coming. This time, they will not publish new forecasts and are not expected to make any policy announcements.
So, is it going to be a non-event? No. President Mario Draghi is always a market mover.
Base case scenario: The critical thing to watch is his fresh assessment of the economy. If he repeats the "risks are moving to the downside", EUR/USD will not go anywhere.
Upside: However, Draghi may acknowledge tentative signs of stabilization (there are very few such signs), and push EUR/USD higher.
Downside: And he may drag the euro down by saying that the risks have materialized citing some of the worse data points.
Bonus: If the ECB provides details about the TLTRO program now and not in June, there is even more downside for the euro.
2) FOMC Meeting Minutes
The Federal Reserve also made a dovish tilt, removing rate hikes from the agenda for 2019, announcing an early end to balance sheet reduction program, and increasing its warnings about the global economy.
That was in March and now will receive more details about that meeting via the FOMC Meeting Minutes. Some dismiss the document as being stale, but it is important to note that the final text of the minutes is revised until the very last moment. The Fed knows it moves markets and sends a message.
Base case: Echoing the same messages of a strong domestic economy vs. a weakening global one. In addition, they will express satisfaction from the employment market but say inflation is subdued. In this case, the USD may wobble but not go anywhere fast.
The upside case for the USD: If they mostly lean towards the strength of the local economy and do not dedicate a lot of words to the global one, it will be somewhat hawkish. And if the message is that they still want to raise rates, even if it comes only in 2020, the USD could enjoy another leg up.
The downside case for the USD: If they not only focus on global headwinds but members also want the Fed to cut rates, the greenback could suffer. It may begin only with "several" or "few" members, but any sign that FOMC members are considering a cut could cut the dollar's value.
3) EU Summit on Brexit
There have been many "crunch times" on Brexit, but with only 54 hours to go to a hard Brexit, this is the real thing. An extension of Article 50 is on the cards, but UK PM May wants a short one while the EU wants a long one and some answers.
The base case is a GBP/USD rally: The EU forces a long extension and GBP/USD rallies hard on hopes Brexit will never happen. They did that last time, which was back on March 21st. They may go for a 9-12 month extension that may be cut short in case the UK approves the Withdrawal Agreement. Such a move could cause some internal rupture in the UK, but in the short term, there's an upside.
Short extension, limited rise: If the EU leaders adapt to May's wishes and find a way for a short extension, GBP/USD may rise on the agreement, but still struggle on uncertainty. It may be a temporary relief that could fade with every passing day.
Hard Brexit, hard crash: This is still the default option. It takes one stubborn EU leader to say No and veto the extension. In this case, the UK crashes out of the EU and GBP/USD crashes with it.
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