Now that Trump and Juncker are friends again, as they pledge to deescalate the trade crisis, the spotlight will inevitably fall on today’s ECB meeting. Even though the agreement triggered a relief rally in the equity market, the lack of reaction in the FX market suggest that the EU-US dispute was not the market’s biggest worries. China remains the main target.
The last batch of PMIs for the euro zone, together with the Trump-Junker “cease-fire” agreement, mean that Mario Draghi will likely feel relaxed for today’s meeting. Nevertheless, we do not expect a ground breaking announcement as Draghi already set out his plan during the June meeting. Therefore, the attention will focus on the council’s view of the economic outlook as well as inflation development. Since the June meeting, investors have reviewed there expectations to the downside and do not expect the ECB to hike interest rate before at least summer 2019.
The single currency appreciated yesterday evening with EUR/USD climbing 0.60% to reach 1.1740. Since then the pair has been erasing gains slowly as investors preferred to remain cautious. Historically, Draghi’s speeches have never been euro positive. There is no reason for it to change today.
By Arnaud Masset
