ECB Recap: Economic risks to the downside, EUR/USD risks to the upside?
Matt Weller, CFA, CMT January 24, 2019 11:57 AM
As unanimously expected, including by my colleague Fawad Razaqzada, the European Central Bank made no changes to monetary policy in today’s meeting. In its statement, the institution reiterated that it would leave interest rates unchanged through at least this summer, or as long as needed for inflation to converge toward the central bank’s target. Of course, this “decision” was widely discounted by markets, so it was Mario Draghi’s press conference that traders were focused on.
In his comments, the ECB President noted that the risks to the economic outlook have “moved to the downside” (a downgrade from “the balance of risks is moving to the downside” at his last meeting). Dr. Draghi blamed the deteriorating economic deterioration on “the persistence of uncertainties related to geopolitical factors and the threat of protectionism, vulnerabilities in emerging markets and financial market volatility."
As other analysts have noted, this is the first time he’s downgraded the central bank’s assessment of economic risks in a meeting where the central bank did not issue new economic forecasts, suggesting that the Eurozone’s economic outlook may be particularly tenuous. If incoming data fails to improve soon, the central bank will probably look to push out its forecast for the first interest rate toward Q4 or even into 2020.
Despite these dovish comments, Draghi appeared reluctant to endorse another round of TLTROs or LTROs to stimulate bank lending. Super Mario’s caution on this front, along with a round of US dollar weakness on Commerce Secretary Ross’s proclamation that the US and China remain “miles and miles” apart in trade negotiations, has kept EUR/USD above its bullish trend line for now.
With economic expectations for the region subdued and rates testing a key support confluence, we wouldn’t be surprised to see a short-term bounce back toward the 1.14 area in the coming days. That said, a break below the year-to-date low at 1.1306 would signal that bears have regained the upper hand and open the door for a move down toward previous support at 1.1270 or 1.1215 next.
Source: TradingView, FOREX.com
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.