​ECB meeting preview: Lagarde to set tone in her first meeting​

With markets expecting little change from the ECB at Lagarde’s first meeting, where should we look for potential volatility?

​When and where?

The final European Central Bank (ECB) meeting of 2019 will take place at their Frankfurt headquarters on Thursday 12 December. That date will resonate for traders as it is the same day as the UK election, bringing a heightened chance of volatility for EUR/GBP.

Will we see any change to ECB rate or quantitative easing?

This will be Christine Lagarde’s first meeting as governor, and barring any spectacular events, it is likely to be a case of her wanting to get her feet under the table before making any amendments to current policy. Early appearances from Lagarde have stressed the importance of fiscal spending as a driver of growth, shifting the emphasis away from ECB-led monetary policy. However, Lagarde has also called for a strategic review of ECB policies; the first such review since 2003. That review took half a year to conduct, and thus there will be many who predict little change on the monetary policy front until the findings are reported from this review.

What will the strategic review bring?

Looking at the last strategic review, there was a particular focus upon exactly what the price target should be and how to best measure inflation. This time around, we are likely to see a similar look at their mandate, alongside a focus on defining price stability, building their strategy around climate change and how to best communicate.

Will we see a change in tone?

There are some within the committee who will have been firmly against the recent package of easing that currently stands at €20 billion of asset purchases per month. It seems unlikely that this will shift at the current meeting, yet Lagarde’s desire to unify a split ECB could see her allude to a potential end date before long. Certainly it feels as though the market mover in this meeting could only really come in the form of a shift in tone from the top.

Where now for the euro?

The recent EUR/USD sell-off appears to be abating, with the completion of a double bottom formation this week. This could point towards further upside as we push past the $1.1179 peak from 21 October. However, whether such a move occurs or not, the wider trend remains bearish and thus it makes sense to view such a rally as being a retracement before we roll over once again. For the short term we need to see how price reacts to this current $1.1097 resistance level, with further upside likely in the near term should that occur.


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