(30 April 2020)DAILY MARKET BRIEF 2:Euro GDP, ECB decision in focus.

At its monetary policy meeting today, the European Central Bank (ECB) is expected to maintain the interest rates unchanged, as the ECB’s Q1 Bank Lending Survey showed that companies’ demand for short-term loans rose in the first quarter due to emergency cash needs in the context of the pandemic-hit activities, and the rise is expected to be sharper in the second quarter.

But the ECB could consider expanding its pandemic QE program by up to $500 billion euro in the absence of a suitable outcome from the fiscal policy leg. There are also rumours that the ECB could start buying junk bonds to give a further financial support to businesses which have been struggling with the serious implications of the coronavirus-led economic shutdown. While the dovish ECB expectations are expected to weigh on the single currency in the run up to the meeting, an announcement of further monetary easing should not necessarily hurt the euro, as a potential ECB commitment to purchase higher risk – higher return instruments should also boost investor appetite in these higher-risk euro-denominated assets, encourage increased inflows towards the single currency and lead to a certain euro appreciation.

The US dollar remained soft on the back of a joyous market sentiment and some end-of-month USD liquidation.

Gold remains bid near the $1700 per oz, and WTI crude tests the $18 mark on the back of lower-than-expected US inventories build of 9 million barrels last week. However, the fundamentals in the oil market works against a sustainable recovery at the moment, therefore price advances could be interesting top-selling opportunities for oil bears.

The EURUSD is offered into 1.0880. The ECB meeting could move the pair outside of its 1.08/1.09 range today. A move above the 1.09 mark should hint at a firm recovery toward the 1.10/1.1020 mark, where lies the 200-day moving average.

Cable is still hesitant near the 1.25 mark. In the dearth of UK specific news, the pound remains silent this week. A softer US dollar could encourage a move above the 1.25 mark. The main risk to the pound’s positive vibe is a reminder from Downing Street that the UK will leave the EU by the end of this year, no matter what. However, we may not hear much from Boris Johnson this week, who will likely remain busy with his new baby boy born yesterday.

 

By Ipek Ozkardeskaya