European markets are trading higher ahead of the most important event of this week. Mario Draghi, the President of the European Central Bank, is going to face one of the most antagonistic policy meeting today in his era of the presidency. The probabilities of the ECB disappointing the market expectations are quite high because markets are expecting a big bazooka from the central bank today.


The expectations 

In September, the cut in the deposit rate by another 10 basis points to minus 0.5 percent AND announcement of asset purchases  

In October, the start of asset purchase  -the quantitative easing-.

In December, the cut in the deposit rate by another 10 basis points to minus 0.6 percent


Intense climate 

One factor which is largely priced in the euro-dollar pair is a further rate cut while the president is likely to face a very tense mood among the 25 members governing council. Speculators are hoping for another round of quantitative easing to be announced today because of the fading growth and inflation in the Eurozone. However, countries like Germany and France do not see any compelling reason to resume quantitative easing again. Excuses such as Trade War and Brexit are going to keep the scale heavier on Draghi’s side     


A remarkable shift in ECB’s policy 

Mario Draghi will try his best to please the market either with his words or with his action. This is going to be a remarkable shift in the ECB’s policy especially when the bank was so confident only 9 months ago when it said it was done with cutting rates and buying debt.


The excuse 

Draghi can always lean on this excuse: other major central banks have started to roll back their monetary policies in order to address the feeble growth.

Remember, the Federal Reserve gathering taking place next week is highly anticipated to cut the interest rate again by another 25 basis points. So, the ECB is only cutting the interest rate by 10 basis points, not that arduous at all from this perspective.


The main bone of contention 

Draghi has the reputation of getting things his way, however today the main bone of contention is going to be another round of bond purchases. Germany, France, and Holland have signaled their skepticism. If another round of bond purchases isn't announced today markets aren’t going to be very happy and we could see an intense sell-off across all major European benchmarks.

I believe that Draghi is going to target €30 Billion a month in asset purchases and the timeline for these purchases is going to span over a year. This is the most sticking point as it requires redefining of the rules with respect to whose debt the ECB is going to buy.        

We experienced tremendous moves in bond yields during August and also in September. The 30-year bond yield for Germany is already sub-zero. Clearly, the smart money was ahead of the game, having said this, in the past few days we have seen investors scaling back from those bats and this is purely due to the skepticism shown by the hawkish members of the ECB.


What about Euro and where can it go? 

We believe that a large part of this upcoming dovish monetary policy is already priced in. The factors which can move the Euro up and down are the number of bond purchases a month if any, and the tone of the ECB’s President.

Risk warning for retail traders: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74.7 % of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Risk warning for qualified professional traders: Derivative products are leveraged products and can result in losses that exceed initial deposits. Please ensure you fully understand the risks associated with a professional trading account. Tax laws depend on individual circumstances and may differ in a jurisdiction other than the UK. Tax law may differ in a jurisdiction other than the UK. TF Global Markets (UK) Limited is authorised and regulated by the Financial Conduct Authority, FRN 629628. Registered address: 2 Copthall Avenue, London EC2R 7DA. Company number: 09042646.

Analysis feed

Latest Forex Analysis

Editors’ Picks

EUR/USD settles at 1.1050 on ECB, virus outbreak

The EUR/USD pair settled at its lowest for this 2020 after the European Central Bank announced a strategic review on inflation policy. Chinese coronavirus spreading abroad.


AUD/USD challenging weekly lows

The Aussie remains on the back-foot as the economy lost full-time jobs in December, while risk-aversion adds to the bearish case. Speculation mounts on an RBA rate cut next February.


Crypto Today: Bitcoin bears force critical

BTC/USD is currently trading at $8,400 (-3.40%) in the afternoon in U.S. hours, as markets bears break critical $8500 price mark, allowing for a wave of further downside pressure. 

Read more

XAU/USD bulls challenging 1573 resistance level

XAU/USD is trading in a bull trend above its main daily simple moving averages (SMAs). After rejecting the 1600 figure earlier in January, the metal has been consolidating near the $1560 per troy ounce.

Gold News

USD/JPY falls to fresh lows, correcting on WHO statement

USD/JPY has tumbled to print fresh lows since failing on the 110 handle, scoring 109.26 and meeting the 200-moving average on the four-hour chart.


Forex Majors