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We have not one, but TWO central banks publishing their monetary policy decisions tomorrow! What can we expect from the BOE and ECB?

Bank of England (BOE)

What happened last month?
Since the Monetary Policy Committee (MPC) decided to keep its interest rates at a record low of 0.50% and its asset purchases at 375 billion GBP, there was no need for a statement. However, BOE Governor Mark Carney caused waves in the markets in last week’s World Economic Forum in Davos when he hinted that the BOE still won’t hike rates despite the unemployment rate almost hitting the their 7% threshold.

What’s expected this time?
Thanks to Carney’s hints, market players are now expecting the BOE to redefine its forward guidance to include a broader range of employment-related indicators. In fact, the BOE might make efforts to stress that it won’t hike rates anytime soon. But if the BOE decides not to include a policy statement with its decision, then we might have to wait for Carney’s inflation report on February 12.

Pair to watch: GBP/USD
Cable is currently testing a former S/R area as well as a trend line and 100 SMA support zone. A strong statement from the BOE could break the bulls’ walls and drag the pair all the way to the 1.5900 area. But if the BOE doesn’t say anything, then we might see a relief rally that could push GBP/USD to 1.6400.

European Central Bank (ECB)

What happened last month?
Like the BOE, the ECB kept its monetary policies unchanged. ECB Chairman Mario Draghi also took time under the spotlight and said that not only will the ECB keep its rates low for an “extended period of time,” but it will also act if the inflation outlook worsened or if money market movements warrant intervention. Duhn duhn duhn duhn.

What’s expected this time?
With disinflation still a problem in the euro zone, some analysts already expect a rate cut from the ECB. Many market geeks aren’t so quick to call a rate cut though, as they believe that the ECB could still use other options, such as some form of QE or funding-for-lending scheme, to boost inflation.

Pair to watch: EUR/JPY
Like Cable, EUR/JPY is also near a 100 SMA support. It’s trading just below the line though, so it probably won’t take much for the bears to pounce. But if you’re a euro bull and Draghi isn’t as bearish in his speech as market players expected, then we might see a retest of the 139.00 area.