Today is a big day for the Euro as the European Central Bank will be announcing its monetary policy decision. In addition to this, we also have the most important economic reading for the US economy that is highly likely to bring mammoth volatility to the currency markets as well. Overall, we can say that the forex market is going to see some wild swings, and here is more on this.
The European Central Bank’s President Christine Lagarde will be speaking today, and she will be delivering the bank’s decision on its monetary policy. It is widely believed that the ECB will leave things as it is, but that does not mean the currency markets or the equity markets are going to have smooth sailing. Lagarde is also going to be discussing the view of the ECB regarding the Eurozone’s countries, and her comments on the economic recovery in the Eurozone are very likely to bring big tsunamis for the Euro.
The ECB is highly likely to present a more optimistic tone. Economic projections will also be released, and the truth of the matter is that things have shifted enormously from the previous reading during the past three months in the Eurozone—mostly in the positive direction. For instance, the Eurozone has a much firmer outlook now compared to where things were three months ago. This means that the bank should start preparing the markets that the time has come that some of the coronavirus-related support is likely to be pulled back from the system.
However, the most recent data has been somewhat disappointing, and this may just keep the ECB away from striking a more hawkish tone in its monetary policy decision today. For instance, we have seen a drop in the factory orders and industrial production in April, and retail sales number was also underwhelming. In addition to that, the ZEW survey and PMI numbers weren’t that positive. Thus, we do think that there is a strong possibility that the ECB may miss this opportunity to send any hawkish message in its meeting today.
So the big question is, how will the EUR/USD pair react to the ECB’s hawkish or dovish announcements? Well, if the ECB keeps its hawkish comments at bay and doesn’t deliver any aggressive comments, it is likely that we may see some selloff in the currency, and the pair could drop towards the 1.21 mark. On the other hand, if the bank decides to take a hawkish stance on the currency, then we could see the EUR/USD picking up some strength, and the pair could easily move towards the 1.23 mark on the back of this event.
It is essential for forex traders to not only be laser-focused on the ECB today and not to make their decision purely based on this event. Remember, earlier, we talked about the US CPI number as well, which will influence the dollar index. This is the last piece of important information that the Federal Reserve is going to have before their monetary policy decision next week. Last week, we saw weakness in the US Jobs data—at best, we could say that the data had mixed ingredients. The other piece of the puzzle is the Fed’s monetary policy decision, and this is why today’s number is of significant importance. Although, it is true that the Fed has said several times before that they have the ability to stomach higher inflation, as they believe that the current strength in inflation is very much transitory.
If the US CPI numbers come in strong, expect some decent strength in the dollar index and vice versa.
As for the crypt market, yesterday, we saw a decent surge in Bitcoin price. Of course, on the fundamental side, the factor that has supported the price is El Salvador’s news. Although Bitcoin has become a legal tender in a small country, at the end of the day, it is still huge for Bitcoin’s reputation, and many would not have thought that it could ever be possible. From a technical price perspective, Bitcoin price is at a critical stage, and it needs to stay above the 50 and 100-day SMA on the 4-hour time frame in order to see more gains. If the price drops below these moving averages and stays below them, we are likely to see more pain for Bitcoin. In summary, Bitcoin’s price is at a critical level, and we certainly need to see more bull momentum for this recent rally to continue.