Date: 08 Apr 2019

The European Central Bank policy meeting is set to headline the economic calendar this week, as traders await the ECB Governing Council’s latest assessment of the euro zone economy and its monetary policy. Last months ECB policy meeting took a distinctly dovish turn, with ECB President Mario Draghi delivering his most bearish policy address since early 2015.

Since the last ECB policy meeting, eurozone inflation data has continued to decline across core eurozone nations, while the German economy has posted its weakest monthly manufacturing PMI and factory orders reading in recent years. The only bright spots inside Europe have been retail sales and services data, which experienced a slight pick-up from depressed levels last month.

The latest ECB meeting minutes showed that some policymakers favoured extending forward policy guidance until 2020 as core EU nations struggle with weakening economic growth. Furthermore, some ECB members have been openly discussing a tiered-deposit system, which they suggest would help the already struggling financial institutions inside the eurozone return to profitability.

Few market participants expect any drastic action from outgoing ECB President Mario Draghi this week, as economists are predicting that the ECB will offer further monetary policy assistance during the June ECB meeting. The central bank is also expected to announce a delay in cutting rates during the June meeting and also to downgrade their current economic projections.

President Draghi is also likely to face a grilling during the ECB press conference over the details of the newly announced LTRO programme and a tiered deposit system on Thursday. Overall, President Draghi is expected to acknowledge that downside risks to the euro zone economy remain present and that more policy action may be needed if EU data further deteriorates.

 

EUR/USD Daily Mountain Chart Source: ActivTrader

EUR/USD Daily Mountain | Chart Source: ActivTrader

 

The euro currency has remained weak against the British pound and the U.S Dollar since the much softer than expected German manufacturing PMI last month. The EUR/USD pair will need to move above the 1.1360 to negate its short-term bearish outlook, with key support currently located at the 1.1170 and 1.1000 levels, while near-term resistance is found at 1.1250 and 1.1290 levels.

 

Written by Nathan Batchelor, External Analyst

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