Anticipation is mounting across the financial markets today, ahead of what many consider as one of the European Central Bank’s most significant policy meetings this year.
Markets are widely expecting the ECB to finally announce a reduction of its monthly bond buying at October’s policy meeting – something that is seen as a big step towards the end of easy money. The million-dollar question is; by how much will the monthly purchase be reduced, and how long will tapering last. This has investor expectations running rampant, and we could see some fireworks today.
The gossip in the markets is that the ECB may reduce monthly purchases, to around 30/40 billion euros per month from the current 60 billion, starting from January. With regards to the duration, markets are expecting the bond-buying program to be extended by roughly six to nine months, after the current program ends at the end of 2017. Investors should keep in mind that although the macroeconomic landscape in Europe remains encouraging, inflation is still below the golden 2% target and as such, is likely to impact today’s ECB meeting.
Let’s not forget about Mario Draghi, who will be closely scrutinized by investors on his tone and thoughts about the euro. With ECB policymakers still expressing concerns over the euro’s strength, Draghi could seize this opportunity to keep euro bulls at bay, by adopting a dovish tone. With there being many potential outcomes to the pending ECB meeting, the euro could turn volatile against its counterparts.
Taking a look at the technical picture, the euro/U.S. dollar (EUR/USD) currency pair remains in a wide range on the daily charts, with 1.1850 acting as a key level of interest. A breakout above this level may encourage a further incline higher towards 1.1920. In an alternative scenario, sustained weakness below 1.1850 could trigger a decline back towards 1.1730.