Market participants have been buzzing about further easing moves from the ECB, as some officials have dropped hints about negative deposit rates while others have confirmed that policymakers are discussing possible monetary policy changes.
In one of his testimonies a few weeks back, ECB Governor Mario Draghi mentioned that deflation remains a concern in the region and that the euro’s appreciation is making it more challenging for the central bank to achieve its 2% annual inflation target. Other central bank members joined in jawboning the euro, with ECB official Noyer saying that easier monetary policy is needed to spur euro weakness. ECB policymaker Bonnici even suggested that negative rates would have the desired impact of pushing the euro in the right direction right away.
It’s pretty clear that ECB officials are acknowledging that they NEED to ease monetary policy but it’s unclear whether they are willing to pull the trigger or not. Either way, their decision this week could push most euro pairs out of consolidation and towards a clearer direction.
As you can see from the charts above, several euro pairs are stalling at key levels. EUR/USD is trading inside a rising wedge while EUR/JPY is stuck inside a symmetrical triangle, waiting to break out in either direction depending on the ECB’s decision. EUR/NZD is sitting at a mid-range support zone while EUR/AUD is hovering near the 1.5000 major psychological level.
An ECB decision to loosen monetary policy, whether through negative deposit rates or unconventional easing measures, could drive the euro lower against its forex counterparts, particularly those currencies whose central banks have a neutral to hawkish bias. On the other hand, an ECB decision to stand pat could mean more gains for the euro. Rumor has it that market players could keep trying to push the euro higher in order to increase the pressure on the ECB to ease!