Don’t waste your time – keep track of how NFP affects the US dollar!

Data Collection Notice

We maintain a record of your data to run this website. By clicking the button, you agree to our Privacy Policy.

facebook logo with graphic

Join Us on Facebook

Stay on top of company updates, trading news, and so much more!

Thanks, I already follow your page!
forex book graphic

Beginner Forex Book

Your ultimate guide through the world of trading.

Get Forex Book

Check Your Inbox!

In our email, you will find the Forex 101 book. Just tap the button to get it!

FBS Mobile Personal Area

market's logo FREE - On the App Store

Get

Risk warning: ᏟᖴᎠs are complex instruments and come with a high risk of losing money rapidly due to leverage.

76.5% of retail investor accounts lose money when trading ᏟᖴᎠs with this provider.

You should consider whether you understand how ᏟᖴᎠs work and whether you can afford to take the high risk of losing your money.

What will the ECB do to the EUR?

What will the ECB do to the EUR?

Information is not investment advice

The European Central Bank will meet on Thursday, September 12. Traders are already discussing the upcoming event and trading on it: the recent weak economic figures from the euro area made EUR/USD test 1.0925, the lowest level since May 2017, on the expectations that the ECB will ease policy this month. Let’s analyze: how likely this scenario actually is?    

Economic background

There were a lot of disappointing economic releases in Europe during recent weeks. Although domestic demand is fine because of the healthy labor market, European manufacturers and exporters are badly hurt by the US-China trade war. German business confidence fell to the 7-year low in August, while the GDP of the region’s leading economy shrank by 0.1% q/q in Q2. The main risks for the region come from the outside: it’s the global economic slowdown and the hard Brexit. 

Inflation expectations in the eurozone have been falling since the start of the year. The decline accelerated in the second quarter. Last month, consumer inflation remained stuck at the 1% rate, well below the ECB goal of just under 2%. The core measure, which excludes more volatile elements such as energy, food, and tobacco, was even lower, at 0.9%. The negative trend in inflation, which used to be about 2 times higher a year ago, will worry the European Central Bank a lot. That’s why market players wait for the regulator to announce the new round of monetary stimulus.  

What options does the ECB have?

In June, the ECB President Mario Draghi has said that the central bank would ease policy again if inflation fails to accelerate. He also mentioned that the Governing Council had discussed such steps as fresh bond purchases, rate cuts and changes to the ECB’s policy guidance. Christine Lagarde, who will succeed Draghi as the head of the ECB on November 1, has recently defended the central bank’s record-low rates and other stimulus measures.

As a result, the ECB is expected to cut interest rates even deeper into negative territory and probably restart quantitative easing (QE). As you have read above, the ECB does have reasons to act this way. In addition, other key central banks are also loosening policy, that includes the US Federal Reserve. If the European regulator doesn’t join this trend, the stronger euro will hurt the staggering prices even more.

At the same time, the situation is not that straight-forward. Some ECB members don’t like the idea of more easing at all, in particular, Dutch Governor Klaas Knot and Germany Governor Jens Weidmann. Austria, France, and Estonia have also expressed skepticism about QE. Moreover, the market is currently expecting the ECB to be quite aggressive in its easing steps. As a result, it might be difficult for the central bank to live up to these great expectations. 

The outlook for the EUR

On the one hand, the ECB head has pledged to support the economy and keep inflation closer to the target level and the lack of the promised easing will land a blow on its credibility. On the other hand, the ECB has already done much and maybe almost run out of ammunition to make a real impact on the economy and financial markets. Such ambiguousness obviously makes the ECB decision less predictable and the euro's reaction more volatile.

All in all, we can see the following scenarios:

  • The ECB delivers both a deposit rate cut and QE. EUR/USD goes to 1.09 and probably lower, but only for a short period of time.
  • The ECB only cuts the deposit rate. After the initial volatility, EUR/USD strengthens to the 1.12 area.

All in all, if we sum everything up, the upside risk for the euro after the meeting looks significant. Note also that it will be very important to listen to the message of the regulator as it might set a longer-term trend for the single currency.   

EURUSD.png

Similar

How to Stay Calm and Trade on Uncertainties

Despite the negative news and worrying headlines, we recommend traders to make mental reframing of the situation. This way, you can look at the market from a different perspective. Let’s observe how you can take advantage of the uncertainties and make the fundamentals work for you!

Popular

Gold isn't saving investors from inflation

Many investors treated gold as a protection against inflation. However, last week, gold lost its major support and dropped despite rising inflation. Why did it act like this?

Choose your payment system

Feel the Team Spirit

Callback

Please fill in the form below so we can contact you

Select the best time for us to call you. We give calls from Monday to Friday in suggested intervals. In case we couldn't get through, we will try again at the same time the next day. For getting real-time assistance, use FBS chat.

We provide only English-speaking callbacks. If you prefer any other languages, contact the support team.

We will call you at the time interval that you chose

Change number

Your request is accepted.

We will call you at the time interval that you chose

Next callback request for this phone number will be available in 00:30:00

If you have an urgent issue please contact us via
Live chat

Internal error. Please try again later