Global macro overview for 10/03/2016
The ECB will publish a very important news release at 01:30pm GMT today, and the most important question that the market participants are asking themselves is: what will ECB do? The ECB has a quite good spectrum of possible choices. They can cut the deposit facility rate further, extend the QE program, increase the QE amount, introduce new LTRO, cut the marginal lending facility, or introduce deeper negative interest rates. In conclusion, all eyes will be on the ECB today as President Mario Draghi attempts to avoid the mistakes of the past and deliver a monetary easing package that is worthy of driving inflation back towards its target of below but close to 2%. This is not an easy task, as central banks all over the world would agree, it is clear that more needs to be done an the core inflation in the euro area is currently at 0.7%, well below its target level. So, there are my scenarios for today's meeting:
1. The most aggressive scenario (ECB Bazooka Unleashed) - Mario Draghi will cut the interest rate, increase the amount of QE and introduce negative interest rate.
2. The mild scenario (that will satisfy investors) - interest rate cut, extension of the QE program without increasing the amount, but with no bottom limit.
3. The failure scenario (investors disappointment scenario) - interest rate cut and extension of the QE program.
Let's now take a look at the technical picture of the EUR/USD pair before today's event. The market can follow three scenarios presented above:
- scenario 1 - most favorite - EUR/USD down to the level of 1.0709.
- scenario 2 - EUR/USD stays in the congestion zone between the levels of 1.1067 and 1.050.
- scenario 3 - disappointment scenario - EUR/USD is rallying towards the local swing at the level of 1.1376.