This afternoon we will have the monetary policy meeting of the ECB, which could strongly impact the Forex.
In effect, the markets expect much to this that the ECB would announce a reduction in QE starting in the month of January 2018.
Unlike previous meetings, where the press 13h45 had almost no impact because of the status quo, and where we awaited the speech of Draghi’s 14: 30 for more information, today announced beforehand could include information on the QE that will have an impact on the Forex. You need to be attentive as soon 13h45.
The three key information are going to attract the attention of the markets today :
1 — The duration of the new plan of asset purchases : the extension of The QE could be 6, 9 or 12 months. The consensus anticipates an announcement for 9 months, but the scenarios 6 and 12 months are not to be discarded. An extension of 6 months could therefore be interpreted as a hawkish tone to the markets, then an announcement of 12 months would confirm the scenario of fewer purchases but for a long time, which could be interpreted as dovish.
2 — The amount of monthly purchases : The current pace of QE is to 60mds € per month, and this amount will be reduced as from the month of January. The consensus seems to anticipate a slowdown in the 30mds €, but we could have a lower amount, especially if the duration is longer. The total amount of the new plan obtained by multiplying the monthly amount by the number of months of extension will also count. At the end of December, this total amount will be 720mds € for the current year.
3 — The announcement or not of the end of QE : some other important information will be to see if the ECB announces the end of QE at the end of the current new program, or if it leaves the door open to a new extension later. We could so instead of having a fixed amount of monthly purchases, a gradual reduction in purchases until you get to zero and end the program. This would be a scenario that is more hawkish.
The combination of these three elements will determine the final reaction of the market and EUR/USD on the Forex.
Finally, a scenario very little discussion, but not to completely neglect it, would be that the ECB is not yet ready to announce a new plan of asset purchases and defers this decision to December. The reaction of the Forex would be uncertain, and we could have volatility with no clear direction is discernible.