FXTM information and reviews
FXTM
93%
IronFX information and reviews
IronFX
92%
Libertex information and reviews
Libertex
91%
FXCC information and reviews
FXCC
90%
Markets.com information and reviews
Markets.com
89%
FxPro information and reviews
FxPro
88%
EUR/USD
1.1733
BTC/USD
42 167.25
GBP/USD
1.3643
USD/JPY
109.5245
USD/CHF
0.9220
USD/CAD
1.2778
EUR/JPY
128.5084

A milestone to another stimulus package


28 October 2020

The Eurozone’s calendar will get relatively busy at the end of this week, with the European Central Bank  (ECB) gathering to set policy at a crucial time for the bloc on Thursday at 11:45 GMT, while on Friday, the agenda will be packed with Q3 GDP growth, October’s inflation, and September’s employment figures, all released at 09:00 GMT. Given the exponential increase in Covid cases and the new restrictive measures applied, which make a double dip in Q4 a more realistic scenario, markets anticipate more actions by the central bank. Yet, policymakers could hold patient this time and instead set the stage for more stimulus in December.

Q3 flash GDP data could be old news


A few months ago, markets were hopeful that a V-shaped recovery will materialize in the second half of the year as governments have been gradually scaling back lockdown restrictions, allowing companies to resume operations, although within certain limits. Indeed, Friday’s preliminary GDP growth data for Q3 are forecast to show a whopping quarterly expansion of 9.4% and an annual change of -7.0%, which is still progressive when compared to the -14.7% mark registered in Q2. However, traders are not waiting excitedly for the numbers anymore. Instead, they are now seriously concerned that 2020 could conclude with another double-dip contraction as the recent tremendous resurgence in virus cases has hit every corner of the bloc before the flu season even starts, forcing member states to put drastic measures in place. Hence, this week’s flash GDP data could be old news and a weak market mover.

The ball is in the ECB’s court


The reality check is that the worst could still be ahead and more needs to be done to save the economy from another freefall, especially if hospital capacities get exhausted, resulting in another full lockdown. On the fiscal front, it seems that EU leaders are not ready to expand their budgets yet. Apparently, this was the main reason why the recovery plan and stimulus talks were not included in the summit agenda earlier this month. Moreover, what seemed to be a historical breakthrough in July when the 750 billion euros recovery fund was approved, is now looking more as an unfinished business and an issue of compliance as member states are delaying any ratifications of the scheme in national parliaments. It is also worthy to note that Germany and France are planning to cut deficits next year, while the story could get even more complicated if someone considers the German election in 2021.

Therefore, the ball is now in the monetary court, and Thursday could be the right time for the ECB to push some action. The muted inflation CPI measure, which is said to remain steady at -0.3% y/y in October, and the rising unemployment rate, which is expected to climb to 8.3% in September, could be another good excuse to adopt a more accommodative policy.

Setting the stage for more stimulus


Still, with interest rates already below zero, making any additional cuts useless, and the asset purchase program stretched near its limits, an increase in the 1.35 trillion euros Pandemic Emergency Purchase Program (PEPP) could be the main option now. Particularly, forecasts suggest a boost of 500/600 billion euros and an extension to the end of 2021 but policymakers may rather postpone such a decision to the December meeting when there will be more clarity about how US policies will adjust following the election on November 3 and how badly the new pandemic restrictions are hurting the economy. Brexit uncertainty may also lessen before the December deadline.

Nevertheless, markets will keep looking for clues that another stimulus package could be announced in the last meeting of the year, paying special attention to President Lagarde’s press conference. Probably a more dovish language and an outlook downgrade could be convincing enough that the central bank is preparing to add more liquidity to the market.

Market reaction


As regards the market reaction, the euro could benefit if policymakers show willingness to strengthen their stimulus package, likely pushing EUR/USD towards the 1.1870 key resistance area. A steeper rally could also hit a wall around 1.1930.

Alternatively, if the ECB strikes a more dovish tone than markets anticipate but leaves traders uncertain about whether monetary policy could turn more generous in December, the pair could decelerate towards the 1.1750 support region. In this case, President Lagarde could also call for more fiscal contribution as she did last week.

#source

Related

Stock Futures Up Ahead Of Fed Meeting
Stock Futures Up Ahead Of Fed Meeting

Futures in the United States and Europe are trading higher today, as investors focus on China’s Evergrande whirlwind, which has even overshadowed the Federal...

22 Sep 2021

Gold's sudden glow in a falling market
Gold's sudden glow in a falling market

Gold's ability to resist the general downtrend speaks to investor confidence that global central bank policies will remain soft enough to avoid triggering a global downward asset sell-off spiral...

21 Sep 2021

Forex and Cryptocurrency Forecast for September 20-24, 2021
Forex and Cryptocurrency Forecast for September 20-24, 2021

The dollar continues to strengthen, and the EUR/USD pair moves south. Starting on Monday September 13 at 1.1810, it ends the five-day run at 1.1730. The movement...

20 Sep 2021

Gold and Silver looking into the abyss
Gold and Silver looking into the abyss

Strong US data revived bets on an imminent QE rollback from the Fed, supporting the dollar and causing bond yields to rise. The news triggered a more than 2% plunge in gold prices...

17 Sep 2021

Stocks pick up some bid after textbook SP 500 bounce
Stocks pick up some bid after textbook SP 500 bounce

European stock markets were modestly higher on Thursday after a rebound in the US and another dip for Asian equities overnight. Hong Kong down 1.7%...

16 Sep 2021

Stock Futures Trade Lower, Investors Worry About Fed Tapering
Stock Futures Trade Lower, Investors Worry About Fed Tapering

US and European futures are trading lower today, following a retracement in US indices. The Dow Jones Industrial Average fell nearly 290 points, wiping out gains...

15 Sep 2021


Editors' Picks

OctaFX information and reviews
OctaFX
86%
HotForex information and reviews
HotForex
85%
XM information and reviews
XM
80%
FXCM information and reviews
FXCM
79%
Vantage FX information and reviews
Vantage FX
78%
Moneta Markets information and reviews
Moneta Markets
77%

© 2006-2021 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.