Mario Draghi is likely to be neutral in his speech today, but the discussion on TLTROs may bring bigger moves for the Euro.
The gold price may retrace from its current level if the ECB becomes more accommodative.
ALL Eyes On The ECB
The Euro area 4Q GDP came as per the consensus. This has strengthened the ECB’s current (neutral monetary policy) stance to some extent.
For the euro traders, today is the big day- the European Central Bank is going to make a decision on its monetary policy. We are expecting a somewhat balanced statement from the ECB. But it is likely that their acknowledgment of the slowdown in the European economy may be perceived as a sign that the bank is in no rush to raise the rates. In our opinion, the chances of the first rate hike by the ECB are next to zero for this year. In fact, it is highly likely that we may not see any rate hike until 2020.
The euro is still holding its ground against the dollar, and as long as the price is above the 1.13 mark, we think the bulls have a chance to push the price higher. Looking at the price action, I think the path of the least resistance is skewed to the downside and the reason for this is that the price is trading below the downward trend line (shown in orange colour) on a daily time frame.
The bulls need the price to move above the 50-day, 100-day and 200-day moving averages. Currently, the price is trading below all of these important moving averages, this gives more strength to the bears.
Later today, between 12:45 to 13:30 London time, we are expecting higher volatility for the Euro. It is likely that may see more swings in the market when the ECB president, Mario Draghi starts to speak at 13:30 London time. The chances are that the price may move lower because of the extended discussion around the TLTROs.
Gold Bulls Are A Little Hesitant
The precious metal is under the critical level of 1300 and this has dampened the outlook for the bulls who are aching to push the price higher. The fact is that there is simply less
demand for the metal and the evidence of this can be seen by looking at the gold ETF. The exchange-traded fund for gold has reduced its holding by 71,418 troy ounces of gold.
Investors are also a little hesitant ahead of the ECB meeting because the central bank is expected to acknowledge some weakness in the European growth and this means more accommodative policy by the bank. This should push investors towards riskier assets. Such a move could take more shine off the precious metal.
In terms of technical analysis, the price has clearly broken its upward trend line and this confirms that the bulls have lost control of the price. The price has also moved below the 50-day moving average, but the bulls have some hopes alive. This is because the price is trading above the 100-day and 200-day moving averages. The immediate support for gold is shown by the horizontal green line which sits at 1264 and the resistance is at 1327, shown by the red horizontal line.