Lagarde will probably repeat her previous messages that the rise in yields is undesired
Ahead of the ECB monetary policy meeting, the euro retains a bullish tone due to a weaker dollar. The greenback retreated along with US Treasury yields after the US data showed that the core inflation rose less than expected in February. The release helped to calm investors’ nerves somehow, sending stocks and other risky assets higher late on Wednesday.
Today, EURUSD extends its rebound, nearing the 1.1950 area early in Europe. If this intermediate resistance gives up, the 1.2000 figure will come back into market focus.
However, the upcoming ECB meeting could put the common currency under pressure if Lagarde just repeats her previous messages that the rise in yields is undesired. That would be insufficient to lift the pair as traders hope for more supportive rhetoric on this front.
As for the policy itself, the ECB is set to leave its deposit rate at -0.50% and its bond-buying scheme at its current size of 1.85 trillion euros. If the central bank announces a surprising increase in its bond-buying scheme, it could lift the euro. However, this scenario has a low probability. Elsewhere, the bank’s updated projections should reflect underperformance from slow vaccine rollout, which would be euro-negative as well.
In other words, risks skewed to the euro downside ahead of the meeting. In case of a local bearish reversal, EURUSD will first get back below 1.1900, to target the 1.1870 region. Depending on the outcome of the meeting, the pair could even challenge recent multi-week lows around 1.1835 seen earlier this week.
In a wider picture, the common currency could lag behind the dollar amid a stronger recovery in the US economy as compared to the Eurozone. Furthermore, the US House of Representatives passed the $1.9-trillion COVID relief package, which President Joe Biden is set to sign on Friday.