Christopher Vecchio, Currency Analyst at DailyFX, comments:
“The EURUSD has been trapped between $1.3680 and 1.3770 for the better part of the last week, and it’s going to need a catalyst aside from French jawboning about how a weaker Euro might help exports to move it from this range. Tomorrow, preliminary figures for February out of Germany could weigh heavily on the ECB meeting next week as concerns over German price levels continue to paint a negative picture for overall prospects in the EU as of late.
“A wave of deflation sparked by declining growth in the Euro-Zone would be detrimental for the Euro-Zone and could prompt Draghi of the ECB to take further dovish policy action. At present time, this would like be in the form of a 0.15% rate cut. After the German Constitutional Court ruling, the ECB’s hands are tied as to unsterilising its bond purchases (which would effectively double excess liquidity in the Euro-Zone) or unveiling an outright, open-ended QE program.
“If anything, as we’ve maintained since before the ECB cut its main rate to 0.25% in early-November, any further non-standard action by the ECB is likely to resemble a BoE-styled Funding for Lending Scheme (FLS). This has become more appealing for the ECB as it could address credit concerns without putting the Euro at risk of a massive ECB balance sheet expansion that another LTRO or a Fed-styled QE would bring – which the GCC advised against. The ECB meets next Thursday, March 6.”