Market Analysis

ECB policy decision is the main market mover this week

The main event for market participants this week is undoubtedly the European Central Bank policy decision, where the ECB is expected to deliver an interest rate cut and announce a new quantitative easing package. Recent statements for ECB policy members suggests that the central bank has still not decided on whether to implement QE at this stage.

Market expectations are sky-high that the ECB will offer some form of monetary policy easing, leaving the euro currency open to a fresh bout of volatility if ECB President Mario Draghi and his team disappoint this coming Thursday. President Draghi has just two ECB policy meetings left before he leaves the central bank.

Recent speeches from leading ECB members have suggested that it is still too early in the European economic downturn to bring forth quantitative easing. Certain economic metrics, such as inflation and manufacturing are extremely weak, while consumer spending and imports remain stable and have yet to turn lower.

The ECB also has to consider the effectiveness of a quantitative easing package and the overall difference that this new policy measure would have on the ‘real economy’. Many economists have suggested that quantitative easing only impacts on stock market prices and those with assets, in fact, they often and does very little fix the structural imbalances within the economy.

Markets are also going to be judging the size of any potential QE package on Thursday, especially now that the German economy and banking system is starting to wobble. A smaller than expected package may disappoint investors, however, it also leaves ECB policymakers room to increase the stimulus package in future if needed.

The ECB also has to contend with Brexit, and the potential economic consequences the eurozone faces from a hard-Brexit scenario. President Draghi may be willing to wait until after October 31st to prepare an economic stimulus package that is tailored for a potential shock to the EU financial system.


EUR/USD Daily Candlestick Chart | Source: ActivTrader

EUR/USD Daily Candlestick Chart | Source: ActivTrader


The EUR/USD pair has been on the move after recent poor ISM data and a number of fairly hawkish speeches from ECB policy members. Technical analysis suggests that the 1.1300 level is top-end resistance this week, while the 1.0900 level is the key support zone protecting a drop towards the 1.0830 level.


Written by Nathan Batchelor, External Analyst, ActivTrades

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