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ECB meeting preview – tinkering around the edges

In their bid to leave almost all policy unchanged, the ECB’s upcoming meeting will likely see a few tweaks in language, but no overall alterations.

ECB meeting – when and where?

The latest European Central Bank (ECB) meeting takes place on 9 June, with the decision announced at 12.45pm, followed by a press conference at 1.30pm.

What to expect

This meeting will see the release of new staff projections for growth and inflation. Growth forecasts could well remain unchanged thanks to the weaker than expected gross domestic product (GDP) figure from quarter one (Q1), but inflation may well be revised higher thanks to recent consumer price index (CPI) strength and ongoing increases in commodity prices.

Like all central banks, the ECB will have to endure questioning from journalists regarding the potential for a tapering of monetary stimulus during the year or into 2022. So far ECB statements have erred on the dovish side, with board members warning against early withdrawal of stimulus that could undermine the bank’s attempts to support the economic recovery from Covid-19. Instead, the bank may well aim to change the language around its Pandemic Emergency Purchase Programme (PEPP), removing the ‘significantly higher pace’ line from its statement, pointing investors to at least a partial slowdown in the pace of asset purchases.

What do markets expect?

Current pricing points towards a high expectation that actual policy will remain unchanged, with just a 5.1% chance of a cut versus 94.9% chance of rates remaining unchanged. This will broadly continue into the end of the year, although some dispersion in opinion can be seen for the last meeting of the year.

Meeting date Expected target rate Cut No change Hike
10 June 2021 -0.5051 5.1 94.9 0
22 July 2021 -0.5051 5.1 94.9 0
9 September 2021 -0.5066 6.6 93.4 0
28 October 2021 -0.5054 6.5 92.4 1.1
16 December 2021 -0.508 8.9 90.0 1.1

EUR/USD technical analysis

At the time of the last meeting EUR/USD was trading around $1.20, but since then the post-March rally has continued, helped along in no small way by the weakness in the US dollar. The pair touched a three-month high at $1.227 in late May, before retreating to a degree.

From the chart we can see that a descending channel/bull flag has formed since late May, although the confirmation of its status as a bull flag would require a move above $1.22. This would open the way back to the May high and revive the uptrend of the past two months. Daily stochastics have dropped back since late May but, having held above zero for the time being, continue to support the idea of a new leg higher in the rally from $1.17.


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