Markets await confirmation from ECB over new TLTRO programme
The European Central Bank policy meeting later today is set to be one most widely anticipated central bank meetings of the financial quarter, with outgoing ECB President Mario Draghi, expected to announce that the ECB governing council are considering offering assistance to Europe’s struggling financial institutions.
Most economists expect that the ECB will not go as far as launching the so-called TLTRO programme today, but they will instead start to communicate to market participants that they will soon be offering another round of cheap long-term loans to EU commercial banks, as economic conditions inside the EU trading block continue to worsen.
So far, European data points have not deteriorated to the extent to which the European Central Bank would deem it necessary to launch another QE programme or cutting interest rates further. The TLTRO programme is seen as a way to calm markets fears as the current economic slowdown underway in Europe gathers speed, with the ECB at least seen to acting to underpin it’s struggling institutions.
The ECB is also set to launch its macroeconomic projections today; we are likely to see the central bank slashing future EU growth and inflation expectations and also revising down GDP forecasts well into next year. The ECB could also start to use more dovish language later today, with traders on guard for any acknowledgment from President Draghi that downside risks have indeed increased since the last ECB policy meeting.
EUR/USD Weekly Mountain Chart | Source: ActivTrader
With the threat of potential trade tariffs on European car imports into the United States and the worsening economic data coming from the German economy, the single currency has been softening against the greenback. The reaction of the EUR/USD pair will be crucial today, especially if we see the much-traded currency pair moving lower in spite of future liquidity injections by the ECB.
If the EUR/USD pair moves lower despite the ECB announcing a TLTRO programme, it is likely to signal that the market is demanding more aggressive action from the central bank. If the EUR/USD does move higher after today’s ECB meeting, key technical resistance is located at the 1.1390 and 1.1420 levels, with extended resistance at 1.1550.
Written by Nathan Batchelor, External Analyst
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