Luis De Guindos chosen as ECB new Vice President

The finance ministers of the Eurozone chose Spain’s Economy minister Luis De Guindos as new ECB vice president. De Guindos is considered as “hawkish” as some remarks he made in the past were interpreted as such. The choice may pave the way for a Nordic presidency, possibly German and should that be the case we could see also a more hawkish ECB president as well. De Guindos responded to criticism of him being accepting the position while being an active politician, by stating that he will defend ECB’s independence. The appointment could enhance hawkish market anticipation for the EUR and hence support it in the long run.

EUR/USD traded in a sideways manner yesterday, above the 1.2355 support level. We see the case for the pair to trade in a slightly bearish mood today. Should the pair find selling orders we could see it breaking the 1.2355 support line and aim for the 1.2230 support level. Should the pair find buying orders along its path we could see it trying to reach the 1.2455 resistance barrier.

All eyes on the ECB

The ECB is to announce it’s interest rate decision today and is expected to remain on hold at 0.0%. Currently the market has priced in the probability at 97%, according to Overnight Indexed Swaps. Main focus is expected to shift to the accompanying statement and the especially the following press conference. Every single word will be scrutinized by investors in the search for more clues about the future of ECB’s rate hike path or the Quantitative Easing program. We expect that no shift in policy will be announced yet as we are at the beginning of the year and it may be too early for such a shift. We also expect that there could be some comments about the QE program however none about raising interest rates. Analysts also suggested that it may be the case that this time the mentioning of the possibility of ECB extending their QE program beyond September will be left out. Additionally/alternatively, it could be the case that they may drop out any possible reference on extending the size of the program. Overall the message could be expected to be more balanced than previous ones, which were more on the dovish side. We see the case however, for the forward guidance to evolve gradually, over time. Next change, to be in March, is expected to be a bit more hawkish to balance the statement even more.

Contrary to yesterday’s analysis that the EUR/USD would move sideways with a bearish tone, the pair moved clearly in a bull’s market and broke the 1.2355 resistance level as predicted in the bullish scenario. We expect the pair to continue in a bullish manner due to the USDollar weakness, however we also expect the USDollar to stabilize somewhat during the day and the pair to continue to move in a more sideways manner. Eurozone’s financial data, as well as the ECB interest rate decision along with the following press conference and the accompanying statement should influence the pair heavily. The US new houses stats should be neutral towards the pair as the forecast is for it not to move as much. Should the bulls continue to have control of the pair we could see it breaking the 1.2495 resistance level and aim for the 1.2600 resistance hurdle. On the other hand should the bears take the reins we expect the pair to break the 1.2355 support line and aim for the 1.2230 support barrier.