What should you expect from ECB June policy meeting?

What should you expect from ECB June policy meeting?

ECB last meeting was a Rocking n Roll to the traders, the single currency surged near $1.40 psychological area as ECB maintained the bank monetary policy unchanged and then dropped sharply near 160 pips after ECB President Mario Draghi dovish comments, who the first time acknowledged a time frame for a potential central bank intervention on June. A low inflation rate may prompt the ECB to act through further monetary easing to counter the risk of deflation.

Mr. Draghi has also expressed serious concerns about the exchange price of the single currency; a strong Euro may hurt the fragile recovery in the euro-zone and may weigh on the prices level. Same concerns are reiterated by the ECB Vice President Vitor Constancio and a governing council member of the ECB Ewald Nowotny.  Moreover, the former Luxembourg Prime Minister Jean-Claude Juncker who is potential candidate to head the European Commission expressed his view against a strong euro as well.

However, overall situation in euro-zone have not improved since May 8^th ECB meting, instead the latest economic indicators are mostly disappointing.  Major weaknesses are registered in France and Germany; the backbone of the euro zone. The German ZEW Economic Sentiment data shrank below forecasts, the French CPI dropped and euro-zone first-quarter GDP was also weaker-than expected. And, inflation indicator data released on Thursday 15^th showed an unchanged CPI reading from last month; the rate remains at 0.7, far below the ECB 2% inflation target.

We believe, even the EUR/USD prices are hovering the $1.3650 area, the pair remains overvalued due to the divergence in ECB and Fed monetary policies. Both central banks are taking different path; the Fed is heading toward interest rate increase while the ECB is debating rates cut. In fact, improving economic data in U.S. is supporting the possibility that the Fed may raise interest by the first semester of 2015, in contrast in euro-zone the ECB is considering a rate cut as early as next month due to the risk of low inflation.

 

How to predict ECB June action and not be surprised?

 

Given that central banks monetary policy and rate decision is correlated to major economic indicators, so from now till June 5^th meeting, you have to set news research and analysis as your daily high priority task as a trader. You need to listen to ECB officials speeches and monitor the remaining euro zone three stars data releases such as employment reports , consumer and production indexes and CPI data in order to predict whether the ECB should engage in further monetary easing or NOT.  An improvement of the indicators will diminish an imminent ECB action while disappointments should be taken as further monetary action is likely to take place.