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If you’re hoping to grab some pips off the ECB monetary policy announcement this week, here’s what you should know about the top-tier event.

For the newbies out there, make sure you read this lesson on why central bank decisions are a huge deal!

What happened last time?

The Official European Central Bank Monetary Policy Decision Hightlights: July 16, 2020 

The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25%, and -0.50% respectively

The Governing Council will continue its purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of €1,350 billion.

Net purchases under the asset purchase programme (APP) will continue at a monthly pace of €20 billion, together with the purchases under the additional €120 billion temporary envelope until the end of the year.

The Governing Council will also continue to provide ample liquidity through its refinancing operations.

ECB Press Conference Highlights:

We expect the key ECB interest rates to remain at their present or lower levels until we have seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within our projection horizon, and such convergence have been consistently reflected in underlying inflation dynamics.

The Governing Council assesses the balance of risks to the euro area growth outlook to remain on the downside.

Headline inflation is likely to decline again in the coming months before picking up in early 2021.

We have slowed down a little bit the pace of purchases because financial markets have been more stable

European Headlines and Data since the last meeting

Leading Indicators: 

Overall, we saw a continued rebound in business and consumer sentiment since the pandemic peak, but it looks like the momentum has slowed in August.

Lagging Indicators: 

Lagging indicators confirmed that economic conditions have rebounded through July and that the momentum has slowed in August.

What to Expect from the Sept. 2020 ECB Statement: 

With the rebound slowing into August, expectations remain that the European Central Bank will maintain a “supportive” tone as inflation and growth continue to remain below pre-COVID crisis levels.

So no changes to policy this week are expected, but traders will be on the lookout for any changes to inflation forecasts, as well as changes to the ECB bond purchasing program expectations.  Any moves there would likely spark euro volatility.

Euro Performance
Euro Performance

Also, the euro has broadly gained in value against the majors since the last meeting, a move likely sparked by the massive stimulus deal, announced by European Union leaders a few days after the last ECB meeting.

Traders will likely be on the lookout for commentary on whether the ECB sees euro strength as a problem for the recovery and whether action may be taken to limit the euro’s gains.

This is probably the biggest scenario to watch out for, and if it plays out, a pullback in the euro against the majors is a likely reaction. This is especially the case against the safe haven currencies if broad risk sentiment continues to remain negative throughout the week.

Looking for a euro pair to trade for this event? Don’t forget to take note of average EUR volatility when setting exit levels!

EUR Pairs Volatility from MarketMilk
EUR Pairs Volatility from MarketMilk