EUR/USD: intrigue of ECB decision

EUR/USD: intrigue of ECB decision

2020-04-30 • Dikemaskini

On April 30 at 14:45 MT time the ECB will unveil its future measures to support the euro zone economy. The press conference will start at 15:30 MT time.

What to expect?

Rates will stay unchanged as the reduction would have little impact. All that remains is to buy extra assets, so called “junk” bonds through its Pandemic Emergency Purchase Program (PEPP). The ECB can remove the cap of its bond purchases or increase the present amount, which is 750 billion euro now. Also the bank can start buying bonds of fallen angels, companies who lost their investment grades during the corona crisis.

These decisions are the bone of contention between the Eurozone member states. On the one hand, it will help poorer states such as Greece, Italy, Spain to borrow money under more favorable conditions. On the other hand, it will be too risky for Germany and Netherlands as borrowers can fail to repay their debts.

Also the ECB can discuss the Targeted Longer Term Refinancing Operations (LTRO), that provide banks with money to lend to customers. Governors can offer banks even more loans, and more cheaply.

Where will EUR/USD go?

If the ECB leaves everything unchanged, the EUR/USD will fall to 1.0765.

If the ECB decides to buy fallen angels and extend LTRO, it will push EUR/USD higher to 1.09.

If the ECB expands quantitative easing, EUR/USD will drop at first, but then stabilize.

If ECB increases the size of PEPP, EUR/USD will surge toward the key resistance near 1.10.

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