ECB reiterates changes made in Strategic Review

Although the governing council forecasts inflation to rise, they expect it to be transitory.

EU (2)

The ECB left rates unchanged at 0% and said its PEPP program will continue to be conducted at a significantly higher pace than during the first months of the year, at EU20 billion.  However, the ECB changed the wording of their July statement to reflect changes made during the Strategic Review, released earlier in July.  As such, the ECB now:

 “…expects the key ECB interest rates to remain at their present or lower levels until it sees inflation reaching 2% well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges that realized progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilizing at 2% over the medium term.  This may also imply a transitory period in which inflation is moderately above target”

Everything you need to know about the ECB

As discussed in our ECB Preview, this statement reiterates the Strategic Review which changed the ECB’s mandate on inflation from “Close to, but below 2%: to a “symmetrical 2%”. They also noted that they forecast inflation to pick up into the end of the year, while moderating to 2% during 2022.  Christine Lagarde noted in her press conference that rates will not be raised if inflation is below 2%.

They also stand ready to adjust all instruments if necessary and that the course of monetary policy will depend on the direction of the pandemic and the vaccination progress.

EUR/USD was choppy within 25 pips on either of the pre-statement release near 1.1795 following the release of the statement and during the press conference.   On a 240-minute timeframe, EUR/USD has been moving lower in a descending wedge formation and price is nearing the apex.  The expectations for a descending wedge will break to the upside and retrace 100% of the wedge.  If price closes above 1.1800, it will have broken above the top, descending trendline of the wedge and prove to be a false breakdown below longer-term support.  Resistance is at the top of the wedge near 1.1991 and then the confluence of horizontal resistance and a longer-term downward sloping trendline (green) near 1.2050,  If price continues to move lower, support for EUR/USD is at the bottom trendline of the wedge near 1.1750, then the lows of March 31st near 1.1707.

Source: Tradingview, FOREX.com

The results of the ECB meeting were as expected: a reiteration of the Strategic review.  Although the governing council forecasts inflation to rise, they expect it to be transitory.  Those expecting a more dovish statement may be disappointed.  Watch for a possible bounce in EUR/USD if shorts decide to exit their positions.

Learn more about forex trading opportunities.


Get exceptional pricing & execution from a global market leader. Start trading with FOREX.com today.

OPEN AN ACCOUNT

Disclaimer: StoneX Financial Ltd (trading as "Forex.com") is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, Forex.com does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by Forex.com or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although Forex.com is not specifically prevented from dealing before providing this material, Forex.com does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.