Dear Traders,
There was not much consistency in the performance of the euro and British pound Wednesday. The cable traded sideways ranging between 1.4220 and 1.4125 and caused rather fake-outs than profitable breakouts. The euro, however, was accompanied by a slight downtrend after touching a weekly high at 1.0976 ahead of today's European Central Bank meeting.
The ECB is not expected to change its monetary policy this month. After having only expanded their stimulus program last month, policy makers are unlikely to announce new measures today. Nonetheless, the focus will be on the ECB press conference and if Mario Draghi signals concerns about low inflation as a result of falling oil prices, investors could speculate that the central bank may increase QE in March. Given the huge decline of the oil price, which has an effect on the inflation rate, policy makers may lower their inflation forecasts. Any cautious comments could therefore mitigate the recent positive tone of some ECB members, saying that the quantitative easing program is working and had already a positive impact on the euro zone's economy.
The ECB will announce its rate decision at 12:45 GMT followed by the ECB press conference at 13:30 GMT.
EUR/USD
The technical outlook has not changed much. We still see a possible resistance at 1.0970, whereby any upside breakouts above 1.0985 may reinvigorate bullish momentum toward 1.1035. However, depending on Draghi's comments, chances are that the euro favors the downward movement. Below 1.0859 we see a next support at 1.0835. Below 1.0830 the focus shifts to the 1.08-level and once this level is significantly breached to the downside, the euro could slide towards 1.0735 and 1.0670.
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