As the U.S Dollar continues to put pressure on the Euro, investors will be looking to see how the combination of the negative events directly impacting the EU will play a part in Thursday's speech by ECB's Mario Draghi.
The greenback started to recover in April as economic data from the U.S continued to print remarkably well with the latest NFPs report showing a better than expected increase in non-farm payrolls, a better than expected increase in U.S wage growth, and a stable unemployment rate at exceptionally low levels.
On Europe’s side, economic data has been mixed coupled with an escalation in the trade tensions between the U.S and China which might spur negativity into the Eurozone, either by curbing general global growth or by incentivizing President Trump to intensify his trade talks with the Eurozone itself. In addition to that, the European economy is facing a risk of a “no-deal” Brexit which will dampen relations between the two nations that have been supporting each other’s economies for years now.
Add to that the political tensions in Italy and the new government’s intention to collide with EU rules and increase spending in the country. Italy’s borrowing costs/interest rates have been on the rise since May and the government finds no other choice but to increase domestic spending in order to bring down the borrowing rate. Another option would be the ECB aiding the Italian economy by slowing down quantitative tapering in Italy only, but that is still a very unlikely scenario. With all that being said, the European economy is also facing a risk of emerging market troubles spilling into the Eurozone and curbing growth in the region.
Given the above, there is only room for the ECB to either maintain the same stance as last month or show some pessimism by stating that although the Quantitative Easing program will end in December, a rate hike will be implemented at a stage further than expected given the wide array of risks in the market. This means that the ECB can either be neutral or dovish compared to last month's meeting.
Given the strengthening U.S Dollar, a neutral ECB will mean that the greenback will pressure the Euro downwards as no internal strength is available from the Euro's side. A dovish ECB will also yield the same scenario (EUR/USD weakening) but the drop will be steeper as the pair will face pressure from both sides of the currency.
For our detailed, intra-day scenarios you can read today's EUR/USD analysis.