EUR/GBP – Has the time come for the ECB to pivot?

• ECB meeting on Thursday
• Markets expecting the first rate cut in April
• EURGBP trading near summer lows ahead of the meeting

Markets are pricing in a lot of rate cuts from the ECB this year and we could learn on Thursday whether they are correct to do so.

The central bank has been extremely resistant to speculation that it could be preparing to cut rates in March and that level of pushback has encouraged traders to push back the first move to April but it’s still pricing in at least 125 basis points this year in total.

If the ECB is going to even consider a rate cut in March, the time to pivot and signal such a shift could well be this week. For traders, the question is how explicit we can feasibly expect policymakers to be or to what extent, the strategy will revolve around leaving the door open to debate while actively discouraging it at this stage.

We’d all like it to be straightforward forward but I still believe the ECB does not want to pivot until as late as possible and there’s a lot of important data to come between now and March that will ultimately determine what the outcome at that meeting will be. For that reason, I expect we’ll see more pushback this week without seeking to shut the topic down altogether.

They will want the flexibility to move without offering markets any encouragement which, considering how they behaved in response to the Fed dot plot in December, is understandable.

A major breakout coming?

The euro has continued to trend lower against the pound at the start of the week and is not far from the lows in early December.

EURGBP Daily

Source – OANDA

This is also not far from the lows seen throughout last summer so a break lower either before of after the ECB event could be a very significant technical breakout.

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