Since the beginning of the week, the euro has settled in a sideways range in anticipation of the ECB's verdict on further monetary policy. Today, on the eve of two important events, Christine Lagarde's press conference and the publication of the US GDP report, the EUR/USD pair tends to decline and is dangerously close to this year's lows.
Resistance is marked at 1.1620 and 1.1670. Support is located at 1.1600, 1.1570, and 1.1525.
The ECB will stick to its brand - expansionary monetary policy. It means that market players who are waiting for the cancellation of stimulus measures will be disappointed, which will certainly affect the euro. The risks of a fall in the euro following the results of Thursday's session are large, according to banking analysts.
Important political decisions will be made at the last meeting this year. The maximum that Lagarde will do today is to start preparing the ground for the cancellation of the emergency stimulus. At the same time, she will focus on the fact that the regulator will not rush to raise the rate, even if her other colleagues are planning this way.
The head of the ECB will have to work hard to make investors believe her. Doubts about the temporary nature of inflation and the long-term prospect of a rate hike are gradually increasing. There is already a big gap between market expectations and the ECB's forecast, which claims that rates will remain low until inflation stabilizes within 2%.
Experts expect that the European regulator will gradually reduce the purchase of assets in the coming months. The monthly purchase rate is expected to be in the range of 40 to 60 billion euros in the second quarter of 2022. It will happen after the regulator curtails the Emergency Purchase Program in March due to the pandemic.
At the moment, the pace of purchases reaches 90 billion euros, of which 70 billion is acquired under the PEPP program and 20 billion - under the asset purchase program. According to Pimco representatives, the regulator is likely to continue the quarterly review of asset purchases, aiming for a smooth transition from a signal in the area of QE to hints of a rate hike.
The ECB's forecasts in the medium term will contrast sharply with the position of the Fed and the Bank of England. It is difficult to say what is going on in the minds of high-ranking ECB members, but the official rhetoric will remain unchanged. Officials will continue the mantra that they believe in the recovery of the bloc's economy and do not see the need to raise the rate earlier than the end of 2023 at current rates.
The ECB will maintain the status quo, but since the markets have begun to build on the likelihood of an ECB rate hike as early as 2022, Lagarde will make every effort to influence the opinion of investors and emphasize the dovish attitude of the ECB on the issue of rates.
No hawkish notes and doubts about the strategy. The bank will continue its strongly dovish position and once again say that inflation is not terrible and everything will get better by itself soon. The purpose of the November meeting is to leave everything as it is without unnecessary words and emotions. In December, as SocGen notes, the ECB "will decide on the completion of the PEPP program in March next year and an increase in the size of the APP program to EUR50 billion in April, as well as on the launch of a new TLTRO program."