FXstreet.com (Barcelona) - The euro failed to garner buying
interest for a second consecutive day against the U.S. dollar ahead
of the much anticipated European Central Bank's monetary policy
Overall, market expectations on a rate change today are fairly low,
thus leaving the responsibility to cheer up the semi-comatose euro
to no other than ECB President Mario Draghi, who will be taking the
stage to make his usual remarks on the post meeting press
conference. EUR/USD is currently quoted at 1.3045, with levels of
volatility logically depressed.
Despite there has been some talk over the possibility of a rate
cut, which seems to be not fully discarded by some bank analysts,
the general consensus is well reflected by Steve Ruffley, Owner of
Tradermaker.com, who said:
"Although the ECB continue to hint at further reductions in the key
interest rate, they know as well as everyone else in the market
that we can't carry on with such low interest rates for ever.
Inflation in Europe is above target both the CPI and PPI figures
continue to indicate that inflation is far from being under
Clemente De Lucia, Economist at BNP Paribas, offers a second view:
"The success of the OMT has reduced the need of an interest rate
cut. The ECB Governing Council seems in a wait and see mood. Our
call, therefore, is for a status quo at next week ECB meeting.
However, should the economic environment deteriorate significantly,
the ECB might decide to cut the refi rate by another 25bp, easing
funding conditions for banks that are having trouble raising market
If history is any indication, investors should be reminded that the
last time Draghi came on stage, the Euro sold-off quite
aggressively. As Kathy Lien, co-founder at BKAsset Management,
notes: "At the time, interest rates were left unchanged at 0.75%
but the euro sold off because the ECB downgraded their 2012 and
2013 growth and inflation forecasts and on top of that had a 'wide
discussion' about interest rates (including negative rates)."
Technically, Valeria Bednarik, chief analyst at FXstreet.com,
observes: "Despite the lack of follow through the downside
continues to be exposed in the short term, as long as price holds
below 1.3110, 38.2% retracement of the same rally."
Chief Currency Strategist at Scotiabank, Camilla Sutton, sees some
downside potential, and argues: "In this environment the pressure
on the ECB to cut rates to 0.5% is mounting. We do not expect an
interest rate cut tomorrow… however we do expect President Draghi's
tone to be notably dovish and for the press conference's Q&A to
focus on the OMT, the potential for negative interest rates and the
state of the European economy. This discussion is most likely to
drive EUR weakness".