ECB meeting: risk balance in focus

2020年1月23日

It is widely expected that the upcoming ECB meeting will be a non-event, it may affect the euro’s dynamics anyway, with the central bank’s rhetoric being in focus. It is possible that the regulator’s tone will start changing in the context of a policy review. It will be interesting if the bank acknowledges the improving economic data in the Eurozone, and how it will assess risks from Brexit trade policy, especially amid the recent escalation in tensions between the European Union and United States.

The upside risk for the euro is the potential shift in balance risk to neutral on the back of rising core inflation and the assessment of the so-called side effects from negative interest rates. In other words, the central bank may strike a slightly more hawkish tone, which in turn could lift the euro as it struggles to firmly regain the 1.11 handle.

So should the ECB surprise to the upside, EURUSD may get back above the mentioned level and overcome the 200-daily moving average around 1.1130. on the downside, the immediate support comes at the 100-daily moving average at 1.1070. As long as the common currency remains above this line, downside risks are limited. Also, the Eurozone consumer confidence index may help to lift the euro of the indicator improves from -8.1 in December.