- The single currency is trapped in the 1.1120-1.1070 range.
- ECB is expected to keep rates unchanged and announce start of the strategy review.
- Euro will likely rise if the ECB acknowledges recent improvement in the German/Eurozone economy.
EUR/USD is lacking a clear directional bias ahead of the all-important European Central Bank (ECB) rate decision.
The currency pair has been largely restricted to a narrow range of 1.1120-1.1070 since Jan. 17.
Status quo policy
The ECB is expected to keep interest rates and other key policy tools unchanged, having cut rates by 10 basis points to -0.5% in September 2019. Further, the bank restarted bond purchases in October.
Focus on strategy review
The highlight of Thursday’s meeting would be the announcement of the official start of the strategy review. The scope and parameters for the review ( which could take a year) need to be set and could garner attention, according to City Index analysts.
The single currency may see big moves if President Lagarde drops a hint of a potential change in the definition of price stability and methods to achieve it.
The German economy is showing signs of life amid continuing easing of US-China trade tensions. The common currency will likely pick up a bid if Lagarde focuses on green shoots, and reiterates the need for more effort on the fiscal front.
The euro, however, may come under pressure if Lagarde downplays the nascent German/Eurozone economic recovery and stresses more on the downside risks. Also, any hint bank planning to adopt a higher inflation target in the future could send the common currency lower.
A close below 1.1070 (support of trendline rising from October lows) would bolster the bearish setup represented by the lower highs, lower lows pattern created over the last three weeks and open the doors to 1.0981 (Nov. 29 low).
On the higher side, a close above 1.1173 (Jan. 16 high) is needed to invalidate the lower highs set up and confirm a bullish reversal.