EUR/USD: Overconfident ECB expectations set to rock the boat

EUR/USD has been advancing as markets expect the European Central Bank (ECB) to convey an optimistic message. Apart from the bank's decision, US jobless claims and coronavirus developments are eyed, Yohay Elam, an analyst at FXStreet, informs.  

Key quotes

“Wednesday's report that the ECB will express optimism about the recovery lifted the common currency, but nothing can be taken for granted. Christine Lagarde, President of the EC, will present new economic forecasts. While economies have been coping better than expected with the impact of COVID-19, the damage is significant, and rising cases in the old continent remain worrying.”

“Lagarde will likely be asked about the exchange rate – after her Chief Economist Philip Lane said he is ‘watching it.’ Comments about FX are uncommon and tend to rock currencies even if the central bank does not plan a direct intervention.” 

“Broader markets are more optimistic than earlier this week, recovering from the blow dealt by the halt of AstraZeneca's Phase 3 coronavirus trial. After the initial fall in stocks and bounce in the safe-haven dollar, the trend reversed. Investors are encouraged by hopes that the trial will resume next week – and progress made by other efforts. The EU secured millions of immunization doses from Pfizer, which is also in advanced tests of its vaccine.” 

“Contrary to coronavirus and race relations, the president receives better marks on handling the economy. The recent upbeat Non-Farm Payrolls boosted the dollar – but may also reduce Republicans' sense of urgency for providing more relief. Update on America's labor market is due out on Thursday, weekly jobless claims.”

“The Brexit drama would have a hard time competing for influence with the ECB and US developments. However, while the pound is the main mover, EUR/USD could also shake in response to an emergency meeting held by EU and UK high-level negotiators on Thursday. Brussels is considering pressing charges against London after the British government released a draft bill that violates the Withdrawal Agreement signed last year.”