EUR/USD drops sharply on worries for Draghi drag

EUR/USD woke up from its pre-ECB nap and  dropped some 70 pips, holding onto 1.12 at the moment.

The trigger is related to the ECB meeting tomorrow.  Leaks, rumors, and reports are quite common and this is no different.

The ECB is reportedly going to cut inflation forecasts for 2017, 2018, and 2019 to only 1.5%, a damp outlook. Given such a forecast, there is little need to remove the policy accommodation. The ECB was expected to upgrade its assessment in tomorrow’s meeting, setting the stage for an announcement about the end of  QE in September.

With lower forecasts, they could move in a slower manner to remove their support for the economy, keeping the pressure on the euro.

Here is the full preview for the ECB: balanced risks could provide a buying opportunity – 3 scenarios

On the other hand,  they are set to upgrade growth forecasts. We already know that  growth is improving, 0.5% in Q1, while inflation is taking  two steps forward, one step backward. Draghi’s recent statements are optimistic about growth but cautious on inflation.

Here is how it looks on the EUR/USD 30-minute chart. Support awaits at 1.1160, followed by 1.1120 and 1.1020. Resistance is at 1.1280 and 1.13.

Earlier in the day, German factory orders came out with a drop of 2.1%, worse than -0.2% expected. This did  not have an influence like this ECB report.