The Governing Council of the European Central Bank is going to hold a meeting this Thursday, on which the central bank is going to consider the monetary situation in the Euro Zone as well as the global economic conditions and possibly implement incremental changes to its underlying stance.
The general forecasts are weighing on the likelihood for the ECB to maintain the key interest rates and the primary refinancing rates unchanged, which would be inlined with the initial statements of the Governing Council from the previous monetary meeting.
“The Governing Council now expects the key ECB interest rates to remain at their present levels at least through the first half of 2020, and in any case for as long as necessary to ensure continued sustained convergence of inflation to levels that are below, but close to, 2 % over the medium term.” [source]
Since then, inflation has risen only slightly with 0.1 per cent towards ECB’s key target-level, thus leaving little room for early celebrations as the price conditions in the Euro Area remain at 1.3 per cent a long way from the desired level of just below 2 per cent.
Image source: TradingEconomics.com
Overall, it is highly unlikely for the ECB to surprise the markets by undertaking any drastic measures that would derail the economy of the bloc from its current course. Given the slight improvement of the inflation rate in June, the Governing Council might comment on the efficiency of the asset purchasing program (TLTRO III), which was initially intended to stabilise the monetary markets by providing sufficient liquidity. You can read more about the purpose of TLTRO III here.
“The Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase programme for an extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.”
The EURUSD pair has been consolidating in a tight range below the major resistance level at 1.12742, and the monetary policy statement on Thursday, which is expected to be released after the meeting of the Governing Council concludes, could act as a catalyst for the pair and potentially propel the pair above the resistance, provided that Mario Draghi and his colleagues present compelling evidence that the monetary policy is currently fulfilling its purpose.
Image source: Trendsharks ©, created with TradingView.com
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