Trading preview of the ECB’s January 2019 governing council meeting 24 January 2019

A double-bubble preview today from both K-man and myself.


The chances for a change in policy are virtually zero.

3 things to look out for.

  1. The next staff projections are expected in March. Today may see a change in wording from “risk are broadly balanced” into ” risks are tilted to the downside” based on the latest slide in German data and France now confirming the trend.
  2. Are they pushing out the rate expectations? Wording may change from “After summer 2019 ” to an even more vague or distant projection.
  3. Did they more precisely discuss the TLTRO’s?

Draghi being a dove, he must feel in his element today.

I was thinking a chance for them to try and look through temporary setbacks as he smalls hinted last time but the recent data, Italian Carige bailout, the French economy suffering from the “yellow vests” protests is probably killing that perspective.

For the currency then.

I did go small long EURUSD yesterday on that slim chance of a bottoming out and a less dovish ECB, but the weight of the data and EURGBP sales are telling me to wait until after the event. I’m going in neutral, watching 1.13 and 1.1420 on the EURUSD for broader action, with a 1.1380/85 intermediate trigger in case we get a more balanced ECB than the market is expecting. Below 1.13 we should see the laws of gravity take it closer to the 1.12 level.

From a broader investor perspective EURUSD is bang in the middle of its 1.12-1.15 box. The weaker side still prevails as the break into the 1.15-1.18 box was short-lived earlier this month but at present there is no strong bias. In my opinion, the chances of going up or down are 50/50 from here and the US shutdown may have something to say sooner or later.



The likely outcome for this meeting is for not much to happen at all. Draghi has become a master vampire at sucking the life and volatility out of these things and today is likely to be no different, unfortunately for us.

However, as with all central bank meetings we need to be ready for any potential headlines we weren’t expecting, and there’s one area the market is focusing on.

First, some facts we do know.

  • The Eurozone economy is softening/moderating along with many other countries. It’s not a Eurozone thing, it’s a global thing.
  • The ECB has ended QE buying at a time when the economy is looking down not up
  • The stack of negative drivers isn’t getting any smaller (US/China trade, Brexit, politics (France/Italy etc etc)

What does it all mean for the ECB?

It means they have to try and keep promoting QE as the saviour of the Eurozone, and why re-investing it will continue to underpin growth conditions. They also have to further acknowledge the risks to growth from “external factors”, and they have to do all this while trying not to make it all sound too negative.

The market is waiting for Draghi to say they’re ready to use some easing tools again, and it knows what’s in the tool box. Expectation for today is that Draghi could promote the ECB’s long-term financing operations (TLTRO’s) once again. While some in the market are looking for indications of a new TLTRO operation, most think that an extension to the current programs might be the most likely choice. Of course, the ECB may decide to pump other tools in their arsenal.

Either way, the market is looking for the ECB to come out and say what comfort blanket they are going to offer the Eurozone economy.

So, the expectations today are for how bad Draghi perceives the economic weakness (it has been put down to temporary factors previously) and what’s he’s going to do about it. That gives us two fairly clear outcomes.

  1. He maintains it’s temporary and just pays lip services to any future ECB action
  2. He takes a dimmer view of the outlook and risks, and makes meaningful comments on possible ECB action

For outcome one, that would send a more neutral tone to the market and would at least not see EUR fall. Outcome two would push rate hikes further away and send a more dovish message, and the euro is likely to fall.

The thing is, I don’t see any outcome (outside of blatantly touting rate hikes) that sends the euro higher, so on that basis, it’s either going to do nothing, or it’s going to go lower. If he’s neutral in his outlook, the market is not going to believe him while faced with weaker data. If he’s dovish, the market is expecting that so will oblige if it gets confirmation. What we need to know is how far can the price move (if it moves).

Crunch time, what’s the trade?

For me, I’m expecting very little movement outside of the usual algo moves on his comments. I certainly don’t see anything coming that would challenge either end of the 1.12-1.15 range. Therefore, I’ll stick to the defined range within that at 1.13-1.1400/10 and take it as it comes. I am long EURGBP at the moment but will be making a decision on that before the ECB. Outside of that, I have no inclination to take a side so as usual I’ll be looking to react to whatever news we get, and I’m not expecting much. Right now (as I type this preview) the euro is looking softer after the PMI data so perhaps a neutral tone from Draghi may erase these moves at most.

As always, stay safe if you’re trading it and good luck.

Ryan Littlestone

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