Skip to content

CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please consider our Risk Disclosure Notice and ensure that you fully understand the risks involved. CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please consider our Risk Disclosure Notice and ensure that you fully understand the risks involved.

ECB meeting preview: PEPP frontloading stifles yields, but Lagarde plan a July retreat?

The ECB look unlikely to change course, with easing yields and an improving economic outlook helping to take pressure off.

Video poster image

ECB meeting: when and where?

The forthcoming European Central Bank (ECB) meeting will take place on Thursday 22 April. The initial monetary policy decision will be announced at 12.45pm (London time), with the press conference getting underway at 1.30pm.

Coronavirus waves continue to stifle economic recovery

The eurozone economic recovery remains on rocky ground thanks to a sluggish vaccination drive, and subsequent growth in Covid-19 cases. That lack of antibody protection brings a distinct lack of confidence that any lockdown measures will be fleeting, with future easing of restrictions likely to result in a spike in cases.

The chart below highlights that slow pace protection compared with the UK and US, with the eurozone likely to suffer greater economic hardship as a result. However, there is hope that this will improve, with the European Union (EU) expected to receive 50 million doses of the Pfizer jab in the second quarter (Q2).

Meanwhile, there will be major questions around the single dose Johnson & Johnson jab which has been approved despite AstraZeneca-style blood clots. Whether the region sees the same type of skepticism around this vaccine remains to be seen.

Vaccinations 20 April Source: Our World in Data
Vaccinations 20 April Source: Our World in Data

Despite the difficulties experienced over recent months, the economic outlook does remain positive as the vaccination push gathers momentum and economic activity responds in turn.

The purchasing managers index (PMI) survey provides a good gauge of how the eurozone economy is faring, and while experiences will remain uneven, we are seeing improvements that point towards a rebound in the Q2 gross domestic product (GDP) reading.

Composite PMI ECB Source: Markit
Composite PMI ECB Source: Markit

What should we expect from the ECB?

As things stand, the eurozone appears to be caught between a slow vaccination drive and a pathway towards freedom. With that in mind, there are grounds for a continued cautious approach from ECB President Christine Lagarde on Thursday.

From an interest-rate perspective, we can see that markets expect little change from the top. Markets are pricing in a mere 3.6% chance of a rate cut, with the bank likely to follow market expectations by keeping rates steady.

ECB - probability distribution

Meeting date Expected target rate Cut No change Hike
22 April 2021 -0.5036 3.6 96.4 0.0
10 June 2021 -0.5082 8.0 92.0 0.0
22 July 2021 -0.5093 9.0 91.0 0.0
9 September 2021 -0.5087 9.0 90.5 0.5
28 October 2021 -0.5130 12.9 86.6 0.5
16 December 2021 -0.5051 13.3 86.2 0.5

Source: Eikon

The decision to front-load Pandemic Emergency Purchase Programme (PEPP) payments in March was aimed at stunting the rise in treasury yields, and that appears to have been relatively successful given the consolidation we have seen since.

The chart below highlights how that decision on 11 March effectively stopped yields in their tracks, with the Italian an German 10-year yields struggling to break higher since.

Italy vs Germany 10Y Source: TradingEconomics
Italy vs Germany 10Y Source: TradingEconomics

The fear for some is that by front-loading of the PEPP programme, we could see an earlier end. The graphic below highlights how most believe we will see the PEPP scheme end on track in March 2022.

However, that would also include a slowing of the programme by July. With that in mind, traders will be keeping a close eye out for signs that the bank could start to pullback on the policy in the coming months.

PEPP programme Source: Bloomberg
PEPP programme Source: Bloomberg

EUR/USD rally raises potential for a bullish reversal

EUR/USD has been regaining lost ground of late, with the pair rising into a six-week high on Tuesday. The rise through $1.199 resistance brings about a bullish signal, yet there is still a rise that we are retracing the wider decline from $1.2243.

With the stochastic rolling over and the price falling back into that same $1.199 level, we could soon find out whether this pair is going to continue its ascent or reverse lower once again.

GBP/USD chart Source: ProRealTime
GBP/USD chart Source: ProRealTime

On the intraday basis, we can see how the current pullback remains within the realms of the ongoing uptrend. With that in mind, bullish positions still look attractive around the 61.8% to 76.4% Fibonacci zone, where a break below $1.1942 would be required to bring a bearish reversal signal into play.

EUR/USD 4 hour chart Source: ProRealTime
EUR/USD 4 hour chart Source: ProRealTime

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

Be ready to act on ECB opportunities

Learn how the ECB’s monetary policy announcements affect interest rates and price stability ahead of its next meeting in September 2020.

  • How might the next meeting affect the markets?
  • What are the key rate decisions to watch?
  • Why is the Governing Council announcement important for traders?

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.