ECB Tapering In Focus
Along with the BOE, the ECB is also in the spotlight today. The bank’s December meeting will be closely watched by markets with traders looking to see whether the bank steps up the pace of tapering. Additionally, markets are looking for a ruling on whether the bank’s asset purchases program, due to end in March, will cease altogether, or whether the program will be extended.
As with the BOE, omicron has added fresh uncertainty to the bank’s outlook as well as flagging risks heading into next year. The ECB has long stuck to the view that the current spike in inflation will prove transitory and, whether the bank increases tapering today or not, this view is likely to be reiterated. The big question is how the bank will manage stimulus next year.
The expectation is that a long running APP will remain in place following the end of the PEPP in March, the duration and scale of this program will be key. However, given the wide degree of options available, it is difficult to estimate market impact. Broadly speaking, the longer the duration and/or bigger the scale of the APP will act as a weight on EUR. The shorter the duration and/or the smaller the scale, the impact should be relatively bullish for EUR.
Technical Views
EURUSD – Bullish scenario
As with GBPUSD, given the weakness in USD, any perceived hawkishness from the ECB today might well create room for a corrective squeeze higher in EURUSD. Price recently tested the low of the local triangle pattern, forming a bullish pin bar, hinting at reversal risks. A breakout above the 1.1377 level will open the way for a test of 1.1527. Tis will also be an interesting area to watch for any more medium term short opportunities.
EURNZD – Bearish scenario
The recent test of the 6.18% retracement from YTD highs has seen the market potentially putting in an interim double top. Any EUR bearishness from today’s meeting might prove the catalyst for a downside break of 1.6538, opening the way for a test of the 1.5351 level and retest of the broken bear channel. Both RSI and MACD turning rapidly lower here in support of such a move.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.