Basic euro forecast: bear
- The Governing Council of the European Central Bank will announce its latest decision on monetary policy in the euro area next Thursday, and all indications are that it is one of the last major central banks to tighten policy following the downturn and subsequent recovery from the corona virus pandemic.
- If the ECB and its President Christine Lagarde reaffirm their continued Dovish stance at their post-meeting press conference, EUR / USD is likely to persist even if part of this narrative has already been valued at the exchange rate.
The price of the euro, threatened by further weakness
In the coming Thursday, the ECB will leave all its monetary policy provisions unchanged. However, its latest political announcement and President Lagarde’s next press conference are far from normal. Speaking to Bloomberg TV last Sunday, he told investors to prepare for new guidelines on monetary stimulus and signaled that new measures might be taken next year. Eurozone after the end of the current emergency bond program.
Speaking just after the ECB raised the inflation target to 2% and acknowledged that it could exceed the target, Lagarde said there were “interesting variations and changes” at the Governing Council’s meeting on 22 July.This will be an important meeting, him added and “gby reviving the perseverance we need to show in order to fulfill our commitment, the guidelines will certainly be further reviewed. “
Not surprisingly, two days followed EUR/USD losses and after a short breath there were more losses on Thursday after that Ignazio Visco, ECB policy maker told the same television station that the ECB should be maintained financial policies are extremely easy to support economic recovery in Africa Eurozone and isolate their financial markets from U higher interest ratesS.
Therefore, it seems certain that tThe ECB is reviewing this policy that week until align it with its new strategy authorization inflation untilto rise for some time more than 2% when interest rates are low. PricedAccording to Visco, significantly lower growth in the coming years has meant that the ECB has had to keep borrowing costs low, despite some temporary declines in inflation.
The main question remains: has it all already been valued at the EUR / USD exchange rate? The ECB, together with the central banks of Switzerland and Japan, was already considered one of the most mediocre central banks, but the EUR / USD still has a year-on-year low of 1.1704 on 31 March and it would not be surprising if it soon falls to this level.
EUR / USD price chart, daily schedule (January 4 – July 15, 2021)
Source: IG (Click for a larger image)
The week ahead: consumer confidence and euro area PMIs
Once the ECB meeting is over, EUR / USD traders will still need to monitor some important data points. Euro area consumer confidence data will be available for the first time on the same day, but the key indicators for purchasing managers in the euro area and its Member States will be more important in July. As ever, higher-than-expected readings are positive for EUR / USD and lower-than-expected readings are negative.
– Written by analyst Martin Essex
Feel free to contact me on Twitter @MartinSEssex