ECB Preview: Central Bank In Wait & See Mode

After big policy decisions last month, January's meeting is expected to be quieter affair

FOREX 4

The ECB is due to give its first policy decision of 2021 on Thursday 21st January at 12:45pm, followed by a press conference at 13:30pm.

No action expected

The ECB are not expected to adjust monetary policy at this meeting, with all the big policy decisions having been taken at the last meeting. In December the ECB increased its Pandemic Emergency Asset Purchase Programme from €1.35 trillion to €1.85 trillion in addition to extending it for a further 9 months, until March 2022. 

Since the last meeting manufacturing in the bloc is holding up well. However, the services PMI remains well in contraction with little prospects of picking up for now amid continued lockdown restrictions in the largest economies, Germany and France. Inflation is also lack luster -0.3% year on year on December.

Short term risk vs medium term growing optimism

Short term risk has turned even further to the downside with higher covid cases and tighter lockdown restrictions. The vaccine rollout is also taking longer than initially hoped.

The ECB economic projections assume lockdown restrictions until the end of March. However, with covid cases and deaths rising and several countries in the block extending lockdown restrictions this assumption could be too optimistic.

Meanwhile Brexit and prospects of additional US stimulus are positive drivers. Furthermore, as the vaccine rollout accelerates and as the weather improves covid cases are expected to lower and economic activity pick up. With this in mind, the ECB could in fact adopt a fairly upbeat tone focusing more on the upbeat medium term developments rather than the near term short term risks.

Euro strength

The strength of the Euro has been in focus over recent weeks and we already know that the ECB is monitoring the exchange rate. Its worth watching out for any comments over the Euro’s elevated value. However, its unlikely that the ECB will take any action.

EUR/USD analysis

The EUR/USD is under pressure around 1.21 after rising to an intra session high of 1.2158 and bouncing off resistance of the descending trendline and falling back through the 50 sma on the 4 hour chart. Although the broader up trend seen on the daily chart remains in tact.

The pair currently trades at 1.21 testing the 20 sma on the 4 hour chart. A break through here could see the 1.2060 critical support tested prior to 1.20.
On the upside a move above 1.2160 the descending trendline resistance could pave the way to 1.2220.

Learn more about trading forex.

Build your confidence risk free

More from EUR

Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.