The spotlight falls on ECB’s interest rate decision

The ECB is to release its interest rate decision today in the late European session and is expected to keep current rate levels unchanged. Currently EUROIS imply a probability of 78% for the bank to maintain its lending rate at 0.0% and the deposit rate is to stay at -0.50%. We tend to concur with the expected rate levels, as the bank had cut the deposit rate by 10 basis points in its last meeting and as the meeting is to be Mario Draghi’s last as President of the ECB. We could expect the bank to provide further details on the QE program which is to restart in November as well as the rates tiering schedule. Also, we would not be surprised to see Mario Draghi reiterating and intensifying his call for fiscal stimulus in the area by member states in his press conference. Given the weak economic performance of the Eurozone we expect the bank to prove unable to escape an even slightly dovish tone in the accompanying statement, and the event, including Mario Draghi’s press conference, could have market moving effects. EUR/USD maintained a slightly upward motion after bouncing on the 1.1105 (S1) support line, yet in the grand scheme of things maintained a rather sideways motion. We expect the pair to keep moving in a sideways manner, albeit the financial releases and ECB’s interest rate decision could increase volatility and change its’ direction. Should the bears dictate the pair’s direction, we could see it breaking the 1.1105 (S1) support line, aiming for the 1.1050 (S2) support level, Should the bulls take over, we could EUR/USD, breaking the 1.1150 (R1) resistance line, aiming for the 1.1200 (R2) , which hasn’t seen price action since August.

…while the USD seems to stabilise somewhat…

The USD stabilized somewhat yesterday and during today’s Asian session, as the positive effect from the progress in the US-Sino relationships seems to slowly be digested by the markets. Analysts tend to note that as trade negotiations move away from the headlights, there does not seem to be much to spur the USD to either direction. It should be noted that concerns about the US economy’s performance seem to resurface slowly but steadily in the headlines. Should today’s US financial releases intensify the worries of the market and given that the Fed meeting is nearing, the USD could weaken. USD/JPY maintained its sideways motion yesterday, however at some point tested the 108.35 (S1) support line. Our main scenario is for the pair to maintain a sideways motion between the 108.35 (S1) support line and the 109.00 (R1) resistance line. It should be noted though that the bears may be hiding just around the corner for the pair, stating their presence should the US financial releases disappoint the markets. Should the pair come under the selling interest of the market, we could see the pair breaking the 108.35 (S1) support line, which served the pair faithfully since the 11th of the month, and continue to aim for the 107.75(S2) support level. Should the pair find fresh buying orders along its path, we could see it aiming if not breaking the 109.00 (R1) resistance line and aiming for higher grounds.

Other economic highlights today and early tomorrow

In a heavy working schedule, during today’s European session, we get from Sweden Riksbank’s interest rate decision, From Norway Norgesbank’s interest rate decision, ECB’s interest rate decision and from Turkey CBRT’s interest rate decision. Also watch out for the release of France’s, Germany’s and the Eurozone’s preliminary PMI’s for October, especially Germany’s manufacturing PMI which tends to get much attention. In the American session, we get from the US the durable goods orders growth rates for September, the preliminary Markit manufacturing PMI for October and the new home sales figure also for September. As for speakers don’t forget Mario Draghi’s press conference for ECB’s interest rate decision.

EUR/USD 4 Hour