ECB the next in spotlight

With official rates widely expected to remain unchanged the focus on Thursday is on the forward guidance and the press conference. The ECB is likely to catch up with the changed growth outlook and turn cautious.

Draghi will almost certainty sound much more dovish this time around than in December when he still had to justify the decision to phase out net asset purchases. Still, the Central Bank President is expected to admit that growth forecasts are likely to be undershot and that external risks, including Brexit, are tilting the balance to the downside, he will likely promote a picture that sees slowing growth momentum, rather than a full scale recession.

So while the ECB’s current policy stance, which is already very accommodative, remains necessary, the guidance is unlikely to change much, which leaves the possibility of a rate hike late in the year on the table and the central bank in wait and see stance for now.

Draghi will likely also be quizzed on the question of further TLTRO loans, although it may be too early for a decision on that front just yet. The issue will likely be brought up in this meeting when the end of the previous round of target long term loans comes into sight and banks will be forced to find refinancing options.

In the market, EURUSD settled in a narrow orbit of the 1.1350-1.1371 area today, above the 2-week low seen yesterday at 1.1336.  A flat-to-downward bias could prevail given the backdrop Eurozone-slowing narrative.

Greater odds for a stronger break to the downside could be seen, if there is positive news on the partial shutdown in the US and/or a breakthrough on the US-China trade negotiation front, while ECB is not expected to affect the direction of the pair significantly. EURUSD resistance comes in at 1.1407-10, whilst Support holds at 1.1345-1.13450.

Meanwhile, Stock market sentiment has started to stabilise and US futures are moving higher while most European indices have erased early losses and are now in positive territory. The Dow Jones futures is up 0.6%, helped by hopes of progress in the quest to end the government shutdown and some positive earnings reports overnight. In Europe, the FTSE 100 is still down -0.23%, weighed down by a stronger pound, but the DAX is up 0.22%, the Euro Stoxx 50 up 0.30%. Stock markets still remained cautious during the Asian session.