Global macro overview for 26/07/2018

A meeting of the ECB should not bring a revelation, as last month's decisions have somehow set the strategy by the end of the year. So far, the incoming data has not changed the fundamental image too much, so the language of the message should be similar to that from June. Mario Draghi will certainly be asked to clarify the date of the first hike (no change "at least until summer 2019"?), but do not assume that specific declarations will be made. The EUR growth potential should remain unblocked with the risk of short-term weakness if Draghi emphasizes concerns about risk factors (China, trade wars, macro imbalances).

Last June, President Draghi announced that "we anticipate that after September 2018 (...) we will reduce the monthly net purchase rate of assets to EUR 15 billion by December 2018, and after that date, we will stop buying". Such a clear sketch of the strategy by the end of the year implies that this week we will not receive new information.

In relation to next year, forward guidance has changed and from now on the ECB assumes that interest rates will remain at the current level "at least until summer 2019", but also until there will be a permanent inflation trend towards the 2.0% target. The date of the increase has been deliberately determined imprecisely to preserve as much flexibility as possible in communicating strategies in the future, but at the same time allowing hawkish expectations to be blocked at least until the end of the first half of the next year. Nevertheless, as we know from ECB unofficial leakages from the ECB, some members of the Governing Council are dissatisfied with the fact that the unclear message is read by the market as a zero chance for a hike before the meeting scheduled for October 24, 2019, while they allow the earlier the date even on July 25, 2019. This may be the main topic of President Draghi's press conference, although we doubt that the ECB president would be willing to exclude anything. It is in the interest of Draghi and the institution he is managing to consolidate the newly announced strategy, to gain credibility, especially in the aspect of the lack of changes in politics in the near future.

The European Central Bank will publish its decision and communication on Thursday, July 26 at 13:45. The market consensus assumes that monetary policy parameters will remain unchanged (reference rate: 0 percent, deposit rate: -0.40 percent, QE: EUR 30 billion / month to September, EUR 15 billion / month until December and termination of the program from 2019 .). At 12:30 pm GMT a press conference of ECB President Draghi is scheduled.

Let's now take a look at the EUR/USD technical picture at the H4 time frame. From the EUR perspective, the consolidation of the June message should primarily lead to a reduction of EUR volatility, but without offering a fraction of hope for earlier interest rate movements the potential for clear traffic is limited at least until better macro data begins to draw a more optimistic outlook. If Draghi emphasizes concerns about China, trade wars, and macroeconomic imbalances, it will give the meeting a dovish tone that pushes EUR lower, although probably within the ranges of fluctuations in recent weeks, so EUR/USD should stay above 1.15.

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