ECB preview: can Draghi talk down EUR/USD after bullish breakout?

EUR/USD is breaking higher ahead of Wednesday’s ECB meeting. Can Mario Draghi talk the euro down after an inverse head and shoulders break?

Euro and US dollar Source: Bloomberg

Wednesday sees the European Central Bank (ECB) return to the fold, with Mario Draghi back in focus in the wake of further economic strife throughout the eurozone. Taking place a day ahead of the usual Thursday, it is likely that this will provide one of the only oddities of the meeting, with many expecting to see a relatively calm event.

ECB meeting unlikely to see major shift in policy

The last ECB meeting saw the committee change their forward guidance to push back their expectations of a rate rise into 2020. They also announced a third round of targeted longer-term refinancing operations (TLTROs) liquidity measures, aimed at reducing the risk for Italian banks. The decision to hit markets with a double whammy highlights why we are unlikely to see any major shift in tone or policy this time around.

Further details of those new TLTROs are likely to be announced at some point in the coming months, yet it is likely that such details will come in June. In any case, such an announcement is unlikely to make a material impact upon markets.

The bank remains reliant upon data given the downward trajectory of inflation and growth. Unfortunately, that trend has been maintained since the March meeting, with both core and headline inflation falling, alongside the ECB’s preferred 5Y5Y inflation swap measure of inflation expectations. Add to that a steep decline in eurozone key manufacturing purchasing managers index (PMI) surveys and it is clear that the bank is likely to be in a similar situation to that seen a month ago.

How will the ECB meeting impact EUR/USD?

The theme is likely to be one of patience, with falling inflation likely to hinder any rate increases for some time yet. The risks as always remain geared to the downside, yet the question is whether we see Draghi go any further than that in a push to drive the euro lower.

The EUR/USD chart below highlights the current position we find ourselves in, with the sharp declines of late March looking likely to be reversed. The prior break through $1.142 resistance signaled a potential bullish reversal coming into play, with a subsequent higher low looking likely. While the price came close to that $1.1176 level, it was never breached. We are now seeing a base form for the pair, with a growing likeliness of a bullish reversal.

EUR/USD daily chart

EUR/USD daily chart

On the four-hour chart, there is a clear inverse head and shoulders in play, with the break through $1.125 having activated that bullish pattern. Instigated by last weeks fleeting rise through that $1.125 swing high, we are seeing the intraday trend of lower highs and lower lows negated as we put together a bullish reversal formation. As such, look out for further upside from here, with a drop below $1.1206 required to negate that bullish outlook.

EUR/USD four-hour chart

EUR/USD four-hour chart


This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material 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 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. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research 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 and quarterly summary.

European Central Bank meeting

Learn about how the ECB meeting affects interest rates and price stability ahead of the next announcement on 6 June 2019.

  • 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
Bid
Offer
Updated
Change
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Bid
Offer
Updated
Change
Bid
Offer
Updated
Change
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-

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

Plan your trading week

Get the week’s market-moving news sent directly to your inbox every Sunday. The Week Ahead gives you a full calendar of upcoming economic events, as well as commentary from our expert analysts on the key markets to watch.


For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

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 spread betting and CFDs.

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

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.