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Whattup, fellas! On Thursday at 11:45 am GMT the European Central Bank (ECB) will publish its monetary policy decision for the month of April. A presser will then follow an hour later at 12:30 pm.

Think you’re ready to trade the event? Let’s have a quick review of what happened last time and what market players are expecting from the central bank this time around.

What happened last time?

  • Key interest rates like refinancing rate (0.00%), marginal lending rate (0.25%), and deposit rate (-0.40%) remain unchanged as expected
    ECB raised GDP, lowered inflation forecasts
  • ECB saw downside risks from protectionism and financial deregulation
  • ECB: policy accommodation still needed to sustain inflation momentum

As expected, the ECB announced that it was keeping its current monetary policies in March. What market players didn’t expect was the central bank removing its easing bias on its QE policies. Specifically, members removed this part from their previous release:

“If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the asset purchase programme (APP) in terms of size and/or duration.

ECB Governor Draghi was quick to throw water to the fire, though, by saying that they’re still seeing downside risks in the form of global protectionism and financial deregulation.

He also emphasized that their policies are “reactive” so that they could always go back to their easing ways if inflation doesn’t move in the right direction. Duhn duhn duhn.

ECB's March Statement and Presser
ECB’s March Statement and Presser

Traders ended up pushing the euro higher when the seemingly less dovish statement was released, but the common currency quickly lost ground when Draghi clarified the ECB’s stance. Heck, EUR/USD even closed the week lower than its open price and nearer to its weekly lows!

What’s expected this time?

  • No changes to key interest rates
  • ECB to temper expectations of a quick exit

Market players aren’t expecting any monetary policy changes from Draghi and friends this month. And since they’ve just shared their latest economic estimates in March, it’s unlikely that we’ll hear any changes to their projections either.

What market bees are buzzing about is the possibility that the ECB members would start getting more specific about their exit plans. If you recall, members such as Ewald Nowotny and Benoit Coeure have hinted that they’re cool with winding down their QE and tightening their rates a bit.

But it’s still Draghi’s show, and a lot more think that his cautious stance will come through. See, between the weaker economic data and sentiment that we’ve been seeing in the region lately, it’s likely that the central bank will choose to emphasize downside inflation risks such as geopolitical and trade conflicts.

That doesn’t mean we won’t see a bit of rainbow after the rain. While ECB members could refrain from giving specific dates, they could also start hinting of some form of schedule for when they would end their QE program or at least debate about changing their rates.

If members show that they’re worried about recent weaker inflation, sentiment, and other economic reports from the region lately, then traders will likely price in a slower exit from an expansionary policy.

But if this week’s events lead us to a more definite schedule from the central bank, then we might see the euro extend its longer-term uptrends.