Ella 
This week is ECB week in the euro zone, and there is growing consensus that this will be a very difficult decision. The ECB’s Governing Council is clearly facing growing divisions, with signs of persistent inflation on the one hand and an economic slowdown on the other having recently strengthened its dovish stance. Our economics team believes that although this is a close call, the ECB should end up raising interest rates by 25 basis points (here is our full preview). The market price was 10 basis points before the meeting and 18 basis points before January. However, given the rapidly deteriorating outlook, we think it is relatively unlikely that the ECB will skip the meeting and raise interest rates later.
EURUSD has seen some influence from the Bank of China and the Bank of Japan, with the US dollar weakening and EURUSD finding support in the 1.0700-1.0750 area. The pair could still find support today due to the lack of important data releases, but we are already seeing signs of speculative euro positions clearing ahead of the ECB meeting. Given the upside risks to the dollar ahead of the release of US CPI data, we suspect it is highly likely that the dollar will fall below 1.0700 again before the ECB releases data on Thursday.
