Market to Focus on ECB Corporate Bond Purchase Details and OPEC Meeting

The ECB is Expected to Keep Rates and Stimulus Unchanged Ahead of Fed June FOMC

The European Central Bank (ECB) is not expected to change monetary policy when it releases its statement on Thursday, June 2 at 7:45 am EDT. The market will be following ECB President Mario Draghi speech for details about the implementation of corporate bond purchases that are scheduled to kick off in June with the ECB forecasts the most likely pieces to change. March’s forecasts were put together using the horrible beginning of the year data, which has improved and before the quantitative easing additional stimulus announced in the same time the forecasts were published. The inflation forecast could rise to 1.6 percent next year, putting less pressure on the ECB to ease monetary policy.

Oil prices will be volatile as the Organization of the Petroleum Exporting Countries (OPEC) meets in Vienna all day on Thursday, June 2. During the same day The U.S. Energy Information Administration (EIA) will release the crude inventories at 10:00 am EDT. The price of crude started a rebound in February after OPEC and other producers floated the idea of an output freeze to keep the supply glut of oil from growing larger. Although the meetings did not end with an agreement energy prices have been stable. The biggest factor of that stability has been the disruptions to supply in Canada, Nigeria, Venezuela, France and Libya. The temporary nature of those disruptions has once again raised questions on the sustainability of current prices as producers hit record levels of output.

The EUR/USD has advanced 0.307 in the last 24 hours. The pair is trading at 1.1174 ahead of the ECB rate statement and press conference by President Mario Draghi. The EUR has lost ground versus the USD as the minutes from the April Federal Open Market Committee (FOMC) meeting were released and put the June rate hike back on the table. The ECB has not enjoyed clear communication with markets. The central bank has come away from the December and March monetary policy meeting disappointed even though it was giving the market exactly what it wanted in the first place. In December the market took the stimulus announcement to be limited, even though the ECB was not really expected to announce new stimulus in 2015 as all signs pointed to 2016. In March the situation become more puzzling as the central bank went above and beyond expectations, but during its speech Mr. Draghi acknowledge there was not a lot of room for the deposit rate to go deeper into negative territory. This “compromise” saw a rise of the EUR. This time around there are few surprises expected specially if the ECB sticks to the agenda.

Oil prices are lower ahead of the OPEC meeting in Vienna after hitting 8 month highs. After the failed Doha oil output freeze meetings with Saudi Arabia calling off the agreement due to Iran not participating it will be interesting to see if the topic gets readdressed in the OPEC members only meeting. Investment banks have begun to change their bearish calls for oil after the effects of the failure to an agreement have not significantly depreciated crude. The transitory disruptions has delayed what seems inevitable unless Saudi Arabia can accept Iran’s wish to regain pre-sanction production levels before it can agree to an oil output freeze. Given the way the Doha summit ended, there is little hope that this will be the scenario, although the new Saudi Oil Minister was one of the first to arrive to Vienna at the beginning of the week which could be taken as a sign of taking the OPEC meeting seriously at a time the organization is being questioned for its very existence.

FX market events to watch this week:

Thursday, Jun 2
All Day ALL OPEC Meetings
7:45am EUR Minimum Bid Rate
8:15am USD ADP Non-Farm Employment Change
9:30pm EUR ECB Press Conference
9:30pm USD Unemployment Claims
11:00am USD Crude Oil Inventories
Friday, Jun 3
8:30am CAD Trade Balance
8:30am USD Average Hourly Earnings m/m
8:30am USD Non-Farm Employment Change
8:30am USD Unemployment Rate
10:00am USD ISM Non-Manufacturing PMI

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza