Jump to content

ECB meeting preview: could the ECB strategy bring a less hawkish stance going forward?


Recommended Posts

ECB meeting preview: could the ECB strategy bring a less hawkish stance going forward?

The ECB could be on the cusp of a dovish shift in tone, with the recent strategy review raising the possibility of a cautious approach to tightening as we move forward.

ECBSource: Bloomberg
 

 

 Joshua Mahony | Senior Market Analyst, London | Publication date: Wednesday 21 July 2021 

ECB meeting: the basics

The forthcoming European Central Bank (ECB) meeting will take place on Thursday 22 July 2021. The initial monetary policy decision will be announced at 12.45pm (London time), with the press conference getting underway at 1.30pm.

Rise of Delta variant reiterates need for supportive ECB

The eurozone economic recovery remains on somewhat unstable ground despite improved vaccination efforts, with the rise in the Covid-19 Delta variant understandably raising questions around just how effective that protection will be.

Nonetheless, the well publicized gap between vaccination rates in mainland Europe and the likes of the UK and US has been largely eroded. In fact, the slowdown in US efforts has seen the EU overtake them in relation to first jabs.

 

Vaccinations 20 July chartSource: ourworldindata

 

From an economic standpoint, things are taking a turn for the better. While the latest purchasing managers’ index (PMI) figures are released on Friday, the June report saw a record high manufacturing reading of 63.4, while services grew at the fastest rate in over 14 years. Those readings helped to drive a 15-year high composite PMI reading.

 

EZ composite PMI chartSource: IHS Markit, Eurostat

 

However, perhaps the most important economic datapoint from a Central Bank perspective is inflation, with the likes of the Federal Reserve (Fed) and Bank of England (BoE) both warning that the current surge in prices could force their hand sooner than previously expected.

Unlike the UK (2.5%) and US (5.4%), eurozone inflation still remains below the 2% mark. At 19.5%, headline eurozone consumer price index (CPI) is backup into levels not seen since 2018. However, this highlights how the pressure on the ECB to act is less evident than elsewhere in the Western world.

 

EZ CPI July chartSource: IHS Markit, Eurostat

Will the new strategy change things?

This coming meeting has become increasingly interesting for markets in the wake of the ECB’s strategy review last week. The coming meeting is likely to provide the opportunity to gain a better understanding of how that strategy impacts ECB thinking going forward.

With the strategy signaling a need to keep inflation at or marginally below the 2% threshold, there will be little need to adjust the dials to shift prices that are largely at the sweet-spot. However, looking at forecasts, the ECB prediction of 1.3% CPI in 2023 signals a potential dovish divergence from the increasingly hawkish tone set by the BoE and Fed.

Furthermore, this could bring a more dovish tone in relation to asset purchases, with a desire to maintain 2% inflation meaning that the bank could use their projections as a basis to maintain a high level of purchases to avoid seeing CPI fall back.

It seems unlikely that the bank will raise asset purchases given the June indications of potential tapering ahead. However, the degree to which the bank will allow prices to diverge from their target will be important in informing future actions.

While the timing of any tapering will be a key topic of concern, rates are largely predicted to remain static once again this month.

EUR/USD downtrend continues as we head towards key support

EUR/USD has been on the back foot over the course of June and July, with price falling back into a three-month low.

That trend remains in play from an intraday perspective, with the four-hour chart signaling a break below $1.1772 following a 61.8% Fibonacci retracement. That ongoing downtrend means that further weakness looks likely from here, with a rise through $1.185 required to negate this bearish view.

 

EUR/USD four-hour chartSource: ProRealTime

 

However, from a wider perspective, the daily chart highlights how we are approaching a crucial historical support level. That $1.1704 level was established in late March, with a break below that point signaling an end to the long-term trend of higher lows.

However, it would also complete the right shoulder of a head and shoulder formation. With that in mind, the ongoing downtrend seen of late runs the risk of providing a major bearish reversal signal for EUR/USD.

Given the potential dovish divergence that could grow between the ECB and Fed, this is a significant market for traders to follow in a bid to ascertain the direction of travel for the coming weeks and months.

 

EUR/USD daily chartSource: ProRealTime
Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • General Statistics

    • Total Topics
      15,677
    • Total Posts
      74,999
    • Total Members
      63,047
    • Most Online
      7,522
      10/06/21 10:53

    Newest Member
    PACAL
    Joined 27/07/21 14:48
  • Posts

    • GlaxoSmithKline Q2 revenue is expected to show revenue growth from newer drugs partially offset by increased generic competition in older drugs. Source: Bloomberg   Shares GlaxoSmithKline Price Revenue Vaccine Earnings before interest, taxes, depreciation and amortization  Shaun Murison | Senior Market Analyst, Johannesburg | Publication date: Tuesday 27 July 2021  When is GlaxoSmithKline earnings date? The GlaxoSmithKline (GSK) earnings release date is scheduled for the 28 July 2021. The scheduled results will cover the groups second quarter and half-year earnings.   GSK results preview: What does the street expect? While GlaxoSmithKline (in partnership with Sanofi Pasteur) look to stage three trials of their Covid-19 vaccine, the company has not yet released a vaccine to market. The global rollout of Covid-19 vaccines (by competitors) looks to have disrupted the course of other vaccine programmes in key markets such as the US and the UK for GSK. Revenue for second quarter (Q2) 2021 is expected to be bolstered by sales of newer drugs in the respiratory and HIV segments, with a partial offset from older drugs which are finding increased competition through generic offerings. In terms of the upcoming results, a mean of analyst estimates compiled by Refinitiv data arrive at the following: Revenue $10.433 billion (+10.27%) year on year (YoY) Earnings before interest tax depreciation amortisation (EBITDA) $2.855 billion (-8.91% YoY) Earnings per share (EPS) $0.51 (+10.87% YoY) How to trade the GlaxoSmithKline results   Source: Refinitiv   A Refinitiv poll of analyst ratings arrive have a long term consensus rating of ‘buy’ for GlaxoSmithKline with a target price $47.87. GlaxoSmithKline (ADR) share price: technical analysis   Source: IG The share price of GlaxoSmithKline continues to trade in an uptrend which has been in place since the beginning of March 2021. The price has however started to correct from near term highs. The correction sees the price now testing support at the 38.85 level. Traders looking for long entry might prefer to see a bullish price reversal around current levels accompanied by a sharper move out of oversold territory by the Stochastic oscillator. In this scenario, the recent high at 40.55 would become the initial resistance target, while a close below 38.35 could be used as a stop loss consideration for the trade. However should a bullish price reversal not manifest and we see the price move to close below both the 38.85 and 38.35 support levels, this could instead be a suggestion that the uptrend has failed and perhaps a new downtrend for the share price is forming. In Summary GSK reports Q2 2021 results on the 28 July Q2 revenue of $10.433 billion (+10.27% YoY) is expected Q2 EBITDA of $2.855 billion (-8.91% YoY) are expected EPS $0.51 (+10.87% YoY) in the Q2 are expected The average long term broker rating for GSK is a ‘buy’ The share price of GSK is testing support as it finds itself in a short-term correction of a longer-term uptrend
    • Alibaba continues to enjoy strong revenue and customer growth, but the decline in its stock price reflects a bleaker outlook thanks to the actions of the Chinese government. Source: Bloomberg   Shares Alibaba Group China Investor IPO Price  Chris Beauchamp | Chief Market Analyst, London | Publication date: Tuesday 27 July 2021    When is Alibaba’s earnings date? Alibaba reports earnings on 3 August, covering its fiscal first quarter (Q1). Alibaba earnings – what to expect Alibaba is expected to report revenue of $32 billion, with earnings per share of $2.24. Alibaba continues to enjoy excellent growth, achieving one billion customers in the 2021 financial year (FY2021), with the vast majority of these based in China. Profit margins and revenues have risen at a steady pace in every year since 2013, at 10% and 23% respectively. However, for Chinese tech shares such as Alibaba, the main concern is no longer business performance, but the attitude of the Chinese government instead. The cancellation of the Ant Financial initial public offering (IPO) and the current clampdown on tutoring stocks points towards a much more restrictive approach to the private sector. As many could have predicted, the culture clash between free market capitalism and the controlling instincts of the Chinese Communist Party has begun anew, with the Party determined to rein in the perceived excesses of the free market. This is a situation unfamiliar to many investors, unused to the impact of government interference on most companies except in relatively isolated circumstances, and accounts for the underperformance of Chinese shares, with Alibaba no exception. Find out more on how to buy, sell, and short Alibaba shares Alibaba broker ratings A total of 17 analysts currently rate Alibaba as a ‘strong buy’, with 30 more at ‘buy’. Three analysts have a ‘hold’ rating, and only one ‘sell’. Alibaba stock – technical analysis The direction in Alibaba stock is clear for the time being. Rallies have been regularly sold, with the latest bounce in late June running into the 100-day simple moving average (SMA), currently 22,225. With the macro outlook so unfavourable the stock continues to reflect investor caution, so it looks like further declines are on the cards as the price targets 18,000 and lower.   Source: ProRealTime A solid business, but outlook continues to darken Alibaba has plenty to commend it from a fundamental perspective, but with Beijing adopting an activist position the stock continues to decline. Investors might argue that this means Alibaba is becoming a bargain, but traders will want to see a turnaround in the price, which is unlikely to happen unless the Chinese government reduces its interventions.
    • EUR/USD, GBP/USD and NZD/USD weaken from Fibonacci resistance EUR/USD, GBP/USD and NZD/USD turn lower after posting a deep 76.4% Fibonacci retracement.   Forex NZD/USD EUR/USD GBP/USD Pound sterling Euro    Joshua Mahony | Senior Market Analyst, London | Publication date: Tuesday 27 July 2021  EUR/USD turning lower from latest retracement EUR/USD has managed to post yet another 76.4% Fibonacci retracement, with the pair heading lower once again. This highlights how the trend seen over the course of the past two months remains worth following. While the trend is very shallow in nature, that does bring a higher likeliness of a deep retracement. As such, a bearish outlook holds from here, with a push up through the prior swing-high of $1.183 required to negate that downside bias. Source: ProRealTime GBP/USD turning lower after 76.4% retracement GBP/USD has started to lose ground in early trade today, following the rally into the 76.4% Fibonacci resistance level at $1.383. With a wider bearish trend playing out over recent months, there is a good chance we see further downside from here. A rise up through the $1.391 level would be required to negate that outlook. Source: ProRealTime NZD/USD slumps after deep pullback NZD/USD has similarly turned lower after a 76.4% Fibonacci retracement yesterday. The wider downtrend points towards such a move coming into play, with a rise through $0.7045 required to negate that bearish outlook. Until then, further weakness looks likely from here. Source: ProRealTime
×
×
  • Create New...