14th June 2018 - The turn is on ECB to send its hawkish message

Walid Salah Eldin

Active member
201 1
EURUSD is still well boosted ahead of the ECB's meeting which will be followed as usual by a press conference of its president Mario Draghi.
It looks now the turn is on the ECB to send a hawkish message about its monetary policy and still existing QE plan, after the Fed had taken its expected decesion to hike the Fed fund rate by another 0.25% to 1.75%.
On continued improving of the labor market and rising faster than expected of the inflation pressure in US, The Fed referred to the possibility of tightening by another 0.50% by the end of the week not only 0.25% as what has been predicted in the beginning of this year.
EURUSD has dipped down shortly to 1.1725 following this highlighting from the Fed which was not away from the market expectations, before rising back to the current levels close to 1.1825 by the ECB's interest rate decision.

The ECB is widely expected to keep today the main refinancing rate at 0, the marginal lending rate at 0.25% and the deposit rate unchanged at -0.4% respectively.
The ECB is expected to represent economic analyses showing rising of the inflation pressure boosted May EU CPI flash reading to rise to 1.9% year on year which is the highest scale of rising since April of last year.
While the economic activities are still evolving running along with increasing demand in the EU labor market thanks to the EU accommodative policies.
However the ECB is expected to warn about the rising trade tensions between US and EU.
ECB may refer to Italy which has about $2.3tr of debt and has a new government tending to take expansion measurements by highlighting the importance of the structural reforms and the fiscal austerities measurements to sustain the financial situation of the EU countries and raise their creditability.

The press conference of Draghi is expected to show shifting of the ECB language toward tightening by providing clearer message about the end of QE and the beginning of raising rates standing below zero currently.
As he assured previously on the importance of monetary policy adjustment which will remain predictable.

Draghi's last message about QE was to keep "the ECB current €30 billion monthly pace of buying is intended to run until the end of September 2018, or beyond, if necessary" leaving the available option for stimulating to only extending the time of the program not the size of it too. The markets have seen in this language barely change to hawkishness.

After higher footing of 1.1725, EURUSD rose again to eye on 1.1834 resistance which stopped its rebounding from its formed bottom on last May. 29 at 1.1509.
The rebounding from 1.1509 drove EURUSD up to be trading now in its ninth consecutive day above its daily Parabolic SAR (step 0.02, maximum 0.2) which is reading today 1.1612.
But it is still depressed by continued existence below its daily SMA50, its daily SMA100 and also its daily SMA200 can keep it exposed to forming lower highs.
EURUSD daily RSI-14 is referring now to existence inside the neutral region reading 52.317.
EURUSD daily Stochastic Oscillator (5, 3, 3) which is more sensitive to the volatility is having now its main line in its neutral area at 57.894 leading to the upside its signal line which is lower in this same area at 55.496.

Important levels: Daily SMA50 @ 1.1956, Daily SMA100 @ 1.2147 and Daily SMA200 @ 1.2007
S1: 1.1725
S2: 1.1616
S3: 1.1509
R1: 1.1834
R2: 1.1996
R3: 1.2138

Kind Regards
Global Market Strategist of FX-Recommends
Walid Salah El Din


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