- ECB set to increase bond purchase program
- Investors want to hear comment on German court ruling
- EURUSD, DE30 rally into the meeting
The ECB launched Pandemic Emergency Purchase Program earlier this year but the expectations are higher. These expectations are to be met at the Thursday’s meeting. What will the ECB do and how will this impact markets?
PEPP set to increase in size
The main expectation for the ECB is to increase the size of the bond purchase program under the PEPP acronym. The program has a cap of 750 billion euro and the markets see the ECB increasing this cap by 500 billion. This is seen as crucial for supporting government bond markets in the eurozone.
Rates to remain unchanged
Start investing today or test a free demo
Open real account TRY DEMO Download mobile app Download mobile appThe ECB held negative deposit rates even before the pandemic and refrained from lowering them further. There are no expectations for such move as bond purchases are seen as more effective for maintaining low risk premiums across the eurozone. Rate cut would be very detrimental for the euro.
Will Lagarde comment on German court ruling?
German court ruling questioned some ECB bond purchases (but not under PEPP) and investors will want to hear from the ECB president if that has any implications for the monetary policy going forward. The market assumes that there will be no consequences.
Market impact
European markets have been gaining strongly and expectations of coordinated action (both fiscal and monetary) is an important factor. Normally, policy expansion is seen as negative for the currency but this time a failure to expand would be seen as a risk to the euro and obviously to the DE30 as well. Markets have discounted PEPP increase and expect the ECB to deliver it.
EURUSD is out of a downward trend and rising sharply on expectations of coordinated action in the EU. The resistance is seen around 1.14. 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.