Central Banks

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The ECB left interest rates and QE on hold today and at the following ECB President Draghi's press conference he did his best to be dovish. Despite this the EURUSD Broke 14 month highs and the EURGBP broke highs since the Trump election. The were a number of reasons traders bought the Euro today, much of it has been building up over the past month or so.

  1. To try and force the ECB's hand with regard to intervention or further Q measures
  2. The big 'what if ' should inflation take off, Draghi did his best to maintain a dovish stance but comments like "better growth has yet to translate in to stronger inflation dynamics" and "recent inflation fall mainly due to lower energy prices" give optimists a reason to buy.
  3. The 10 yr Bund to US 10 year Note spread is rising
  4. EURGBP positions still being unwound today it went through the July and 2017 high price at 0.8949. It now is at the highest level since the US November election. 
  5. Angela Merkel's lead in the polls for the upcoming German elections
  6. General positivity around France's new President Macron
  7. The political unrest in the U.S. with the ongoing partisan attacks, healthcare bomb and Russian soap opera
  8. The perceived strengthening of the EU in Brexit negotiations since the UK elections.

The big question how much of this is built into the price, it has steadily risen since May. Was this years low the base of a major cycle?

ECB Statement Highlights

  • main refinancing rate 0.0%
  • marginal lending facility 0.25%
  • deposit facility  -0.4%
  • asset purchase target EUR 60bln
  • See rates at present level well past end of QE
  • QE running until end of Dec or beyond if needed
  • QE to run until inflation path changes

Draghi Opening Statement and Q&A Highlights

Growth

  • Growth risks broadly balanced
  • Better growth has yet to translate in to stronger inflation dynamics
  • Survey data points to solid, broad-based growth in the period ahead
  • Recovery in investment continues to benefit from easy conditions and corporate profitability
  • Global recovery should help exports
  • Incoming information confirms strengthening of economy that has been broadening
  • Sees 'current positive cyclical momentum'
  • Downside risks 'primarily related to global factors'

Stimulus

  • A very substantial amount of stimulus still needed
  • If needed, we stand ready to increase stimulus
  • We confirmed asset purchases will continue at least through December
  • Purchases will continue until ECB sees sustained inflation pickup
  • Measures to preserve favorable conditions needed
  • We were unanimous in not outlining a timeline 
  • We aren't there yet, We need patience
  • Longer-term yields have risen but are still low by historical standards
  • Staff hasn't been tasked with researching tapering options

Inflation

  • Recent inflation fall mainly due to lower energy prices
  • Headline inflation likely to remain around current levels in the coming months
  • Measures of underlying inflation have yet to show convincing signs of a pickup
  • Inflation is not where we want it to be, and where it should be. We're confident it will get there, but it's not there yet
  • Factors holding back inflation will last for some time, they're not permanent
  • In Autumn will look at inflation
  • The response to wages is different than it was in the past. Key for us is whether it will be structural

The Euro's Technical Picture

EURUSD broke the 2017 high at 1.15826, optionality at 1.1600 level and over the 2016 high at 1.16156. The high just peaked at 1.1658 today.  Above here we have the 2015 high at 1.1711. Immediate support here is the newly broken highs and fibonacci levels. Below we have charts from Heidi @heidstertrades and OOTTNews.com
 
EuroDollar EURUSD Charts via Heidi @heidstertrades
 
 
 
 
EuroPound EURGBP Charts via Heidi @heidstertrades
 
 
 
 
Check Out More Heidi at OOTTNews
 
More Forex Analysis 
 
 
Trade Smart
KnovaWave @knovawave

 

 

 

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