When is the ECB monetary policy decision and how could it affect EUR/USD?

ECB monetary policy decision – Overview

The European Central Bank (ECB) is scheduled to announce its latest monetary policy update at 12:45 GMT this Thursday. The ECB is widely anticipated to leave its benchmark interest rates unchanged at 0.0% and expand its Pandemic Emergency Purchase Program (PEPP) to support the COVID-19 stricken EU economy. The December meeting would also be accompanied by the latest economic projections, which will be followed by the post-meeting press conference.

According to Deutsche Bank: “The recalibration will most likely focus on PEPP and TLTRO; and the intention of the recalibration is to maintain favourable financial conditions for longer, not to reduce the level of rates or yields further. We expect an extension by 6 months of the PEPP net asset purchase period and the TLTRO3 discounted interest rate period beyond their current expiry in June 2021. We also expect an increase in the PEPP envelope (EUR400 B) and other moves on TLTRO3 (e.g., additional tenders, possibly an adjustment to the lending benchmark, etc). No discount rate cuts are expected but the ECB will likely communicate very strongly its willingness and capacity to extend support even further and to ease the policy stance if needed to achieve its objectives. In effect, stronger informal forward guidance. Communications will likely be a key line of defence against a rising exchange rate.”

How could it affect EUR/USD?

Lagarde's comments will be closely scrutinized for the central bank's concerns about the recent appreciation of the shared currency. This, in turn, could infuse some volatility around the euro crosses and produce some meaningful trading opportunities around the EUR/USD pair.

Meanwhile, FXStreet's own Analyst, Yohay Elam provided important levels to trade the major: “Support awaits at 1.2080, which was a swing low on Monday. It is followed by Wednesday's trough at 1.2060. Further down, 1.2040 and 1.2005 are eyed. Some resistance is at the daily high of 1.21, followed by 1.2045, which capped EUR/USD on Wednesday. The next level to watch is the 2020 high of 1.2177.”

Key Notes

  •  ECB Preview: More money but no honey, Lagarde may lower the euro if she wants to

  •  EUR/USD Forecast: Will the ECB deal a third blow to the euro? Bears are gaining strength

  •  EUR/USD: Potential to slump below the 1.20 mark – Rabobank

Description

ECB Interest Rate Decision is announced by the European Central Bank. Usually, if the ECB is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the EUR. Likewise, if the ECB has a dovish view on the European economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.