The central bank could prepare the markets for a further easing of monetary policy in December
It’s clear that the ECB is moving closer towards another round of easing, as coronavirus cases keep rising across the continent, making investors price in weaker economic growth in the region during the winter months. Still, it’s too early to announce new measures this month, and more asset purchases will likely come in December.
At the same time, the central bank is widely expected to hint at additional supportive measures during the upcoming meeting due on Thursday. As the euro is already under intensifying selling pressure, and dovish rhetoric should not be a surprise, the meeting outcome should not be overly negative for the common currency. Still, a downbeat economic estimate could add to the downside pressure surrounding EURUSD amid the persisting risk aversion that helps the dollar to stay afloat these days.
A spike in COVID-19 cases suggests the Eurozone economy will likely see a contraction in the fourth quarter, with governments across the continent once again tightening restrictions on activity, especially in France, Spain, and Germany. Against this backdrop, the ECB could deliver gloomy forecasts tomorrow and thus prepare the markets for a further easing of monetary policy in December.
EURUSD has accelerated the decline on Wednesday and dipped below the 20-DMA earlier in the day. As a result, the euro plunged to nine-day lows around 1.1745 and could threaten the 1.17 handle if the pressure intensifies any time soon. On the other hand, traders could take a more cautious stance ahead of the ECB meeting, suggesting the pair may proceed to a consolidation mode in the near term.
Now, as the common currency is back below the mentioned moving average (at 1.1775 today), the technical picture has deteriorated further. If the central bank delivers a more dovish tone than expected, the EURUSD pair could challenge the 1.17 support that could trigger a bounce. Otherwise, the 200-DMA at 1.1645 will come back into market focus.