❗ Market alert: what to expect from ECB?

1:16 pm 21 July 2021

📆 Get ready for the ECB decision on Thursday!

European Central Bank is set to announce monetary policy decisions on Thursday at 12:45 pm BST. Interest rates are expected to be left unchanged. However, things are less obvious when it comes to asset purchases. European Central Bank conducted an 18-month long policy review, which has led to a revision of the Bank's inflation goal. On top of that, ECB President Lagarde hinted that changes may also be made to forward guidance. Markets began to speculate that ECB may be warning markets that its policy is about to become more accommodative. Having said that, the statement itself may be interesting but explanations offered by Lagarde during a presser at 1:30 pm BST are likely to draw significant attention as well.

Inflation goal

Start investing today or test a free demo

Open real account TRY DEMO Download mobile app Download mobile app

ECB announced results of its strategy review on Thursday, July 8. Bank will no longer pursue an inflation "below, but close to 2%" and instead will follow a 2% goal with commitment to symmetry. What does this mean? ECB will aim to achieve a 2% inflation goal and perceive both positive and negative deviations as equally undesirable. Nevertheless, transitory deviations from the target will be allowed. As the ECB has been struggling to achieve its previous goal for years, markets began to speculate that the new target may pave the way for a more accommodative monetary policy, which - at least in theory - should boost price growth.

Forward guidance

ECB President has also hinted recently that the Bank may make changes to its forward guidance during the upcoming meeting. The question remains - which one? ECB forward guidance on rates is that they will stay low until inflation goal is achieved and it looks unlikely that the Bank will change its approach. ECB forward guidance on pandemic purchases assumes that PEPP will run until the end of March 2022. Given that virus cases are on the rise and change to inflation goal, ECB may be readying the market for a change here - possibly a slower phasing out of PEPP. Finally, forward guidance on Asset Purchase Programme (APP) assumes it will run for as long as necessary to ensure accommodative impact of policy rates. This one is the most vaguely written and some market participants speculate that ECB may want to somehow link it to the inflation target.

Market reaction

While ECB itself did not offer much hint on the direction of changes to forward guidance, markets seem to be sure that it will be a dovish tilt, rather than a hawkish one. The ECB has effectively increased its inflation target and the fact that it has struggled to achieve the previous one in recent years, hints that the Bank wants to make its policy somewhat more loose rather than tight. If this is so, the euro could come under pressure and stocks could benefit.

EURUSD has been trading lower recently and has reached a fresh 3-month low this week. The pair is slowly approaching a support zone ranging above the 1.1700 handle. The area is marked with lows from the end of March 2021. A point to note is that the pair has painted a clear, downtrend structure over the past few weeks so sentiment change may require a break above the latest lower low in the 1.1880 area.

Source: xStation5

The content of this report has been created by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, (KRS number 0000217580) and supervised by Polish Supervision Authority ( No. DDM-M-4021-57-1/2005). This material is a marketing communication within the meaning of Art. 24 (3) of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (MiFID II). Marketing communication is not an investment recommendation or information recommending or suggesting an investment strategy within the meaning of Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC and Commission Delegated Regulation (EU) 2016/958 of 9 March 2016 supplementing Regulation (EU) No 596/2014 of the European Parliament and of the Council with regard to regulatory technical standards for the technical arrangements for objective presentation of investment recommendations or other information recommending or suggesting an investment strategy and for disclosure of particular interests or indications of conflicts of interest or any other advice, including in the area of investment advisory, within the meaning of the Trading in Financial Instruments Act of 29 July 2005 (i.e. Journal of Laws 2019, item 875, as amended). The marketing communication is prepared with the highest diligence, objectivity, presents the facts known to the author on the date of preparation and is devoid of any evaluation elements. The marketing communication is prepared without considering the client’s needs, his individual financial situation and does not present any investment strategy in any way. The marketing communication does not constitute an offer of sale, offering, subscription, invitation to purchase, advertisement or promotion of any financial instruments. XTB S.A. is not liable for any client’s actions or omissions, in particular for the acquisition or disposal of financial instruments, undertaken on the basis of the information contained in this marketing communication. In the event that the marketing communication contains any information about any results regarding the financial instruments indicated therein, these do not constitute any guarantee or forecast regarding the future results.

Share:
Back
Xtb logo

Join over 935 000 XTB Group Clients from around the world.

We use cookies

By clicking “Accept All”, you agree to the storing of cookies on your device to enhance site navigation, analyze site usage, and assist in our marketing efforts.

This group contains cookies that are necessary for our websites to work. They take part in functionalities like language preferences, traffic distribution or keeping user session. They cannot be disabled.

Cookie name
Description
SERVERID
userBranchSymbol cc 2 March 2024
adobe_unique_id cc 1 March 2025
__hssc cc 8 September 2022
SESSID cc 2 March 2024
__cf_bm cc 8 September 2022
intercom-id-iojaybix cc 26 November 2024
intercom-session-iojaybix cc 8 March 2024

We use tools that let us analyze the usage of our page. Such data lets us improve the user experience of our web service.

Cookie name
Description
__hstc cc 7 March 2023
__hssrc

This group of cookies is used to show you ads of topics that you are interested in. It also lets us monitor our marketing activities, it helps to measure the performance of our ads.

Cookie name
Description
hubspotutk cc 7 March 2023

Cookies from this group store your preferences you gave while using the site, so that they will already be here when you visit the page after some time.

Cookie name
Description

This page uses cookies. Cookies are files stored in your browser and are used by most websites to help personalise your web experience. For more information see our Privacy Policy You can manage cookies by clicking "Settings". If you agree to our use of cookies, click "Accept all".

Change region and language
Country of residence
Language