European Central Bank Preview: Three topics to make the difference for EUR/USD

The European Central Bank (ECB) is set to leave rates unchanged but its comments on the exchange rate, new forecasts and any comment about future bond-buying are all set to rock EUR/USD, FXStreet’s analyst Yohay Elam reports.

See – ECB Preview: 10 major banks expectations

Key quotes

“The ECB is unlikely to mention the rate in the statement, nor in the opening statement. However, ECB President Christine Lagarde will surely be asked about it. If she says that the bank "does not comment on the exchange rate – or dodges the question altogether – the euro may have room to rise. Conversely, if she, as the head of the institution, conveys a message of unease, the common currency may shed some ground. At the current juncture, investors expect Lagarde to express some concern about the exchange rate. Therefore, there is an upside risk for the euro if she dismisses the topic.”

“The ECB publishes new growth and inflation forecasts every three months. According to Bloomberg, the bank is set to upgrade these projections – or at least express more confidence in the recovery. The news about elevated confidence has already sent the euro higher, leaving room for a downfall if the ECB leaves them unchanged or even lowers them. Overall, an upgrade in GDP forecasts is baked into the price, leaving more room for a downside surprise.”

“Reporters are set to ask Lagarde about the progress of the bond-buying scheme and if it needs to be scaled down. She will likely reiterate that the program is set to continue advancing as planned. If Lagarde pays lip service to the hawks and suggests some funds will stay within the ECB's vaults, the euro could fall. On the other hand, opening the door to more bond-buying – well before the program expires – would boost the common currency. The most likely scenario is for Lagarde to say that no changes are expected. The bias is neutral in this case.”