European Union (EU) scheduled to decide budget and relief package on Thursday alongside European Central Bank’s monetary policy decision. Both Poland and Hungary have vowed to veto the budget, including the €750 billion ($909 billion) coronavirus stimulus package. Both nations believe the budget is punishing them for their conservative values, as noted by Financial Times.

The correlation between the size of the European Central Bank’s (ECB) balance sheet and inflation in the common currency area is zero , according to Jeroen Blokland, Portfolio Manager for the Robeco Multi-Asset funds, Robeco ONE and Robeco Pension Return Portfolio.

That seems to be the case the central bank has expanded its balance sheet from roughly EUR 4.7 trillion to a record high of EUR 6.83 trillion in the eight months to November 2020. However, Eurozone’s inflation turned negative in September and the Consumer Price Index has remained below zero ever since.

The ECB, too, is expected to increase the size of its asset purchases this Thursday. While that’s typically bearish for the currency, the central bank’s impending dovish seems to have been priced in by markets. Moreover, the central bank needs to match the Federal Reserve’s aggressive easing to put downward pressure on the euro.

The German 10-year bond yield has declined by more than 30 basis points to -0.54% this year.

Ministers will not take decisions at their meeting on Monday, leaving that to Thursday’s summit of EU leaders, who in October told Turkey to stop exploring in disputed waters in the eastern Mediterranean or face consequences. Turkey’s move in late November to return a seismic exploration vessel to port has calmed tension, but EU officials and diplomats said broader issues – over Libya, Syria, Russia and authoritarianism in Turkey – have hardened EU positions.“I’m not aware of any EU government challenging the view that the situation is worse than October and that leaders should consider the consequences,” said a senior EU official. “We have been requesting a change that has not come.”

EUR/USD 4 Hour Chart:

Support: 1.2096 (S1), 1.2071 (S2), 1.2031 (S3).

Resistance: 1.2161 (R1), 1.2202 (R2), 1.2226 (R3).

All the catalysts makes Euro weaker, we expect a bearish trend for EUR/USD.