by Ivan Delgado Egea - FXstreet.com | View company's profile
THREE POTENTIAL SCENARIOS
- Rate hold, no hint for cuts next month: It is well known that the ECB primary mandate is to ensure price stability, thus defending inflationary pressures, which remain above the 2% target, may force the central bank to hold rates unchanged. In this case, and solely based on this decision, the Euro is likely to appreciate significantly, even with more impetus than previously expected, as the Fed just signaled it continues to be ready to embark on QE3 if necessary. Between one to two breaks of technical levels to the upside are possible.
- Rate hold, hint for cut next month: Chances of an imminent rate this month are neutral. Draghi may prefer not to be seen as excessively aggressive, however, the new ECB president may hint an increasing inclination toward lower rates in the coming month. If that happens to be the case, the Euro is likely to depreciate by either stay mostly flat, range-bounding, or break to the downside by one technical level.
- Rate cut, more to follow shortly: A faltering economic recovery in Europe, where low to null growth continues to be the norm, combined with weakness in the labor market and a debt crisis that continues to deteriorate, may encourage Mr. Draghi to adopt a dovish tone and cut rates, in an attempt to adjust the overstretched cash rate, which does little to contribute on improving the ailing economy.
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