The Eurozone is far from getting off of the sick bed but there are signs of a turnaround
Draghi steps up to the plate at 12.30 gmt to give us the latest from the halls of the governing council. As Eamonn noted, the main points will be what the ECB beavers will do with the next set of economic forecasts
Here's how things stand from the March projections
The economic recovery showed some gradual improvement in the second half of 2014 and, looking
ahead, several factors are projected to strengthen euro area activity. First, the sharp fall in oil priceswill lead to a substantial increase in real disposable income, and households are expected to spend asignificant part of such gains. Second, over the projection horizon, euro area activity will be increasingly
supported by the gradual strengthening of external demand and the impact of the depreciation of the euro.
There's tentative signs that spending is increasing, as we saw from the retail data earlier. Unemployment is ticking down but very slowly so there's still a long way to go before we start to see higher employment transition into spending
As for the forecasts here are March's;
Overall, real GDP growth is projected to pick up from 0.9% in 2014 to 1.5% in 2015, and to 1.9%in 2016 and 2.1% in 2017. In contrast, the pace of potential output is estimated to remain rather modest, as the contribution from labour and capital remain subdued on account of high structural unemployment and in the aftermath of a long phase of weak investment. This implies that the estimated negative output gap will be closing over the projection horizon
Unfortunately we don't get to see the Eurozone Q1 GDP numbers until Friday but there might be some clues in the text of the new projections and they could be touched upon by Draghi
HICP inflation is projected to average zero in 2015 but to rise to 1.5% in 2016 and further to 1.8%in 2017. The low HICP inflation rate in 2015 reflects a large negative contribution from HICP energy
inflation. However, the downward price pressures from energy prices on headline inflation are projected
to moderate towards the end of 2015 as past declines in energy prices gradually drop out of the annual
rate of change and given that oil prices are assumed to increase over the projection horizon in line with
the upward sloping oil price futures curve. As a result of these factors, energy prices are envisaged to add positively to headline inflation in 2016 and 2017.
What do we know about inflation?
We know it has possibly found a bottom but more importantly for the ECB, expectations are rising.
The latest numbers from the economic sentiment reports shows that these expectations have been steadily rising
Eurozone consumer inflation expectations
I can't help but harp on about this fact as it is a huge part of how the ECB views and adjusts monetary policy and it's these signals they will use to adjust their rhetoric for price stability
At the moment the ECB can put these number to one side and highlight the ongoing risks to prices but we're seeing the landscape change on oil and prices in general. If it's maintained the market is going to take one line of thought, and that will be whether the ECB may cut short QE
For this meeting that risk is small and I expect any mention of an improving price picture to be brushed aside by Draghi, with a repeat of the strong commitment to keep QE running until the end date. He has the privilege of being able to do so until he sees that the data is sustainable enough to say different. While the ECB may say they want to pump until Sep 2016, they would rather the economy is in a good enough shape before then so they can stop
Trading wise, the head man will do his utmost to flatten any rising expectations from the press (and market) over the prospect for Europe I don't think we will get too much change on the forecasts and any upward revisions will con with risk caveats. Watch the euro if it jumps on the forecasts as that might lead into a dovish Draghi which will send it lower
For the prices, 1.1200/10 marks the nearest decent upside resistance followed by 1.1245/50 and 1.1285/90. 1.1000 is holding support below and then we have my old mate at 1.1040/50
