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One of the central events of today is the decision of the European Central Bank (ECB) on monetary policy.
The EUR/USD pair strengthened four days in a row, but sellers seem to start returning to the game in anticipation of the ECB's verdict.
In the first quarter, the eurozone economy expanded by 0.4% after its previous two quarters grew by 0.2%. This is good news for the European Central Bank, as it confirms its assumption that the slowdown in the region's economy is only a temporary phenomenon and will not go into recession.
However, the preliminary inflation data for May were very disappointing. In the annual rate of inflation slowed to 1.2% from April's 1.7%. That is, the ECB has not yet managed to bring the indicator even close to the target level (2%).
At the same time, trade negotiations between the United States and China came to a standstill, and the trade war between the two economies of the world broke out with a new force. The parties continue to exchange mutual duties, limiting the activity of companies in both countries and expressing mutual accusations.
Thus, the overall picture has deteriorated compared to the previous ECB meeting. How will the regulator respond?
Traders do not expect the Central Bank to adjust the interest rate. However, they would like to know how generous the new long-term Bank lending program (TLTRO) would be, how it would be calculated and whether the rate for new loans would be negative, zero or close to zero? The regulator can update forecasts for economic growth and inflation in the EU, as well as hint at further action if these indicators slow down even more.
Recently, the euro is inclined to fall following the ECB meeting. However, according to some analysts, the single European currency today can interrupt this trend.
According to them, there is a possibility that the position of the regulator may not be as soft as the market expects.
"ECB President Mario Draghi may not be such a "dovish" as the market believes. While everyone is focused on external risks, such as trade tensions (to downplay its importance, indeed, it is impossible), in some cases it is not possible to recognize the moderate but important incentive that we continue to see from the domestic sector," said Jeremy Stretch of the Canadian Imperial Bank of Commerce (CIBC).
He predicts that the EUR/USD pair will return to the level of 1.1570 dollars by the end of the next quarter, and then continue to grow to 1.18 dollars by the end of the year.
Other experts are less optimistic about the euro. They assume that economic activity and inflation in the EU remain depressed, even though business confidence shows signs of recovery.
"At the moment, it is difficult to be openly optimistic about the euro. Weak economic growth and inflation in the eurozone are putting pressure on the ECB, which could provide further policy easing on the part of the regulator. Therefore, it is difficult to see too much growth potential for EUR/USD," said Lee Hardman from MUFG Bank.
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