All The Spotlights On ECB President Lagarde

Sep 09 21, 11:10 GMT

Today we expect EUR traders to focus on the release of ECB’s interest rate decision and the bank is widely expected to keep rates unchanged with the refinancing rate being at 0.0% and the deposit rate at -0.60% while currently EUR OIS imply a probability of 96.67% for the bank to do so. Given the high GDP rate (2.2% qoq) and the accelerating HICP rate (3.0% yoy) the question for the ECB is now, how to roll back its PEP Program. The issue seems about to be heavily debated given that Germany, Netherlands and Austria seem to be leaning towards the hawkish side and favor a possible earlier tapering while other countries seem to be in no rush. In every case a compromise to reduce the current pace of purchases from 80 billion to 70 or even 60 billion could be expected for now. At the same time the bank may have to readjust its projections for inflation and GDP given the recent acceleration (beyond market expectations) of the two rates and as the European economy seems to be roaring back to life. Should overall the bank sound more confident than usual, we may see the common currency getting some support, while if the bank maintains its usual dovish tone, we may see the EUR weakening. We highlight ECB President Lagarde’s press conference, which is to follow 45 minutes later and usually tends to create substantial volatility for EUR pairs.

EUR/USD continued to drop yesterday aiming for the 1.1785 (S1) support line. We tend to maintain a bearish outlook for the pair as long as it’s price action remains below the downward trendline incepted since the 7th of September, yet we note that the pair seems to be stabilizing as it allready is testing the prementioned trendline. Should the selling interest be extended, we may see EUR/USD breaking the 1.1785 (S1) support line and aim for the 1.1695 (S2) level. Should the buyers be in control of the pair’s direction, we may see the pair breaking the prementioned downward trendline and aiming for the 1.1885 (R1) resistance level.

USD continued to strengthen boosted by uncertainty

The greenback was supported yesterday and during today’s Asian session as a cautiousness seemed to dominate the markets given the worries about the Delta variant’s possible adverse effects on the pace of the recovery of the US economy. On the other hand, US stocks closed lower Wednesday given that all major US indexes dropped providing a clear indication of the market’s worries and of a risk averse sentiment being present. Risk sentiment seemed to improve somewhat when NY Fed Bank President John Williams stated yesterday that more progress was required in the labor market before the bank started to taper its massive QE program. On the flip side, later Dallas Fed President Kaplan stated that given the current situation he expects to advocate in the coming meeting of the Fed (September 22) for an announcement of a plan to adjust the purchases lower, maybe as early as October. Today market attention may be on the release of the US weekly initial jobless claims, while a high number of Fed officials are scheduled to speak.

The USD Index continued to rise yesterday yet seem to have found some resistance at the 92.75 (R1) resistance line. We tend to maintain a bullish outlook for the index currently, given also that the RSI indicator below our 4-hour chart remains near the reading of 70 implying a slight advantage for the bulls. Should the bulls actually remain in charge of the index’s direction we may see it breaking the 92.75 (R1) level and take aim for the 93.20 (R2) level. Should the bears take over, we may see the index aiming if not breaching the 92.30 (S1) support line before any further losses are incurred.

Other economic highlights today and the following Asian session:

Today during the European session, we get Norway’s GDP rate and Germany’s trade data, both for July. In the American session we note the release of the US weekly EIA crude oil inventories figure.

USD Index H4 Chart