Today we have an important release from ECB, the press conference is taking place at 1:30pm GMT. We expect a very high level of volatility during this event.
If Draghi reveals a large package of measures, such as an expansion of QE, then the euro will likely be pressured. If however Draghi reveals no additional measures and the earlier rate announcement was a minimal cut of 10 basis points, we may see a squeeze on the euro. Given the ECB are aware of the consequences of disappointing the markets, there is a high probability of additional measures being announced.
The ECB press conference is about an hour long and has 2 parts; first a prepared statement is read by ECB President Mario Draghi, which is later available on the ECB website, then the conference is open to press questions. The questions often lead to unscripted answers that create heavy market volatility. The press conference is webcasted on the ECB website with a slight delay from real-time. The ECB Statement and Press Conference is the primary method the ECB use to communicate with investors regarding monetary policy. It covers in detail the factors that affected the most recent interest rate and other policy decisions, such as the overall economic outlook and inflation. Most importantly, it provides clues regarding future monetary policy.
Since Draghi announced on January 21 that the ECB will re-examine QE in March, the market has priced in a 10 basis point cut to the deposit rate from -0.30% to -0.40%. Although there is the possibility of additional measures such as an expansion to the current QE program, given the ECB under-delivered in December the market has been much more cautious this time round with regards to expectations. The interest rate decision will be announced 45 minutes earlier and the market will be keenly waiting for any other policy measures that Draghi will reveal in this statement. The Euro has been rather resilient since the January meeting, with EURUSD actually higher now than before the announcement, this reflects the cautiousness given the ECB disappointed in December. The ECB has many different monetary policy options available and it may take time for the market to fully digest the ramifications of any new measures.
P.S. This release was also covered in the weekly risk events video. You can watch it here.