The market and investors have been waiting for this day for a long time, and expectations before the September decision of the European Central Bank have been steadily rising. A possible recession in Germany, a trade war between the US and China, Brexit - these are all events that can lead to the resumption of powerful monetary stimulus in the eurozone that the markets are waiting for today.
On Thursday, September 12, the ECB is to present new measures to boost inflation in the euro area and the economy. However, one cannot be entirely sure that all market expectations could be met. The consensus assumes a cut of the deposit rate from 10 basis points to -0.5 percent and the resumption of the EUR 30 billion monthly QE program. There may be a big problem with that latter on. Among others, the heads of central banks of Germany, France, the Netherlands and Austria expressed scepticism about the need for quantitative easing. In their view, since QE is the ECB's most powerful weapon, this tool should be reserved for a real crisis and recession, not an economic slowdown. Mario Draghi will, therefore, have a difficult task to convince the majority of this idea. This may be one of the key disappointments for the market. If that happened, the euro could strengthen and debt yields, instead of falling, could rise.
It should be also remembered the term of office of Mario Draghi is at the end of October. Therefore, it cannot be ruled out that the Governing Council would wait with specific decisions that could tie the hands of the current head of the IMF and the future head of the ECB to a change in this position. It is also possible to announce QE, but without the details, which will be known later. Meanwhile, lowering the deposit rate, which seems like the easiest decision, could hit the banking sector. Any ECB decision may have some side effects.
That is why there is so much uncertainty in the market which can be seen in what is happening in the fx options market. The price of hedging against today's EUR/USD fluctuation is the highest since January. As a consequence, the market also estimates that volatility during today's decision may be above average. It is worth preparing before 13:45 for a possible larger range of fluctuations of currency pairs with the euro and it should be remembered that the market has set the bar very high for the ECB. In addition to the decision at 14:30, there will be a press conference.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Trade this news from Conotoxia Ltd. platforms
Go to your account
