EUR focuses on ECB’s interest rate decision

Today during the late European session (12:45, GMT), the ECB will be releasing its interest rate decision and holding a press conference later on (13:30 GMT). The event is to gain additional interest as the meeting is to be the first with Christine Lagarde at ECB’s helm. The market expects the bank to maintain the deposit rate at -0.50% and currently EUR OIS imply a probability of 86% for such a scenario, while the refinancing rate is also to remain unchanged, at 0.0%. We expect the economic projections for 19,20,21 to show a slight improvement on inflation as Germany’s and France’s rates outperformed market expectations for November and the same applies for the GDP rate, which could provide a slight boost for the EUR if materialized. The big question remains for Christine Lagarde’s press conference and should she choose to adopt an optimistic tone we could see the EUR strengthening.

…while the USD nurses wounds from the FOMC decision…

The FOMC remained on hold as expected, yet may have disappointed the bulls thus weakening the USD. In its decision the bank dropped the line about “uncertainties about this outlook”, providing some optimism, yet cited also that inflation rates run below the bank’s targets and the decision was unanimous showing a more unified Fed. The new dot plot, showed that no rate hike was in the bank’s plans for 2020, while in his press conference J. Powell stated that he needs to see a significant persistent inflation rise in order to hike rates, hosing down such expectations, and implying that the US may be left to run a bit hot. EUR/USD rallied yesterday breaking the 1.1105 (S1) resistance line, now turned to support. The pair’s direction for the day is expected to be heavily influenced by the ECB interest rate decision. Should the pair’s long positions be favoured by the pair, we could see it breaking the 1.1170 (R1) resistance line and aim for the 1.1230 (R2) resistance level. Should the pair come under the selling interest of the market we could see it breaking the 1.1105 (S1) support line and aim for the 1.1050 (S2) support level.

…and the pound faces the UK elections…

The pound rose in the prospect of the UK elections which are to be held today and the main scenario currently remains for the Tories to win. Albeit a win for the Tories is probable, the formation of a stable Torie government remains rather uncertain providing volatility for the pound. Should the Tories be able to form a stable government we could see the pound rallying, while in the reverse scenario, the pound could tumble. The main time to be watched for would be when the polls close, when the first results start coming out finally when a clear picture starts to form. Cable rose yesterday breaking the 1.3170 (S1) resistance line, now turned to support. We expect the pair’s direction to be influenced by the UK elections. The results could create high volatility for the pair as some degree of uncertainty for the end result is still present and the stakes are high for the UK. Should the pair find fresh buying orders along its path we could see it breaking the 1.3340 (R1) resistance line and in an extreme scenario cable could break also the 1.3500 (R2). Should the pair’s short positions be favored by the market, we could see it aiming if not breaking the 1.3170 (S1) support line and in an extreme bearish scenario, we could see it breaking even the 1.2885 (S3) support level. The pound may have already priced in partially a win of the Tories, hence we could see an stronger reaction if the bears reign.

Other economic highlights today and early tomorrow

Today, during the European session we get from Switzerland SNB’s interest rate decision, from the Eurozone the industrial production growth rate and from Turkey CBRT’s interest rate decision. In the American session, we get the US PPI rate for November as well as the new number of initial jobless claims. In tomorrow’s Asian session from Japan we get the Tankan large Manufacturers Index for Q4. As for speakers, NY Fed President Williams and BoC Governor Poloz speak.

GBP/USD 4 Hour