Has ECB President Mario Draghi saved the euro from a key medium term breakdown on EUR/USD? The ECB monetary policy was held firm as expected today. In fact the meeting statement from the March to today’s April meeting was exactly the same. Standing pat, the ECB held at -0.4% on deposit rate, 0.0% on the main refinancing rate whilst the Asset Purchase Program was maintained at €30bn per month. The euro barely budged on the rates decision and continued to flirt with a key medium term downside break. However the euro has subsequently been lifted by Mario Draghi’s press conference.
The main aspects of the ECB monetary policy statement (see below) remain in place. On rates: “interest rates to remain at present levels for an extended period of time” and more importantly (certainly for now) the Asset Purchase Program running to the end of September or beyond if necessary. It is the second factor is important as this is the first aspect of monetary policy that will change and this is still expected to be seen in the coming months.
Draghi played a dead straight bat to the question of whether this roadmap will be laid out in June… “We did not discuss that“. The change to forward guidance is expected to come in either June or July and as yet we are no closer to knowing which meeting. Our expectation is still that in either June or July the ECB will guide the market for a continuation of the APP until December but to taper the purchases to end the program in December.
The press conference is often far more interesting and Mario Draghi has driven some volatility in the euro but more importantly the euro has strengthened on his words. In answer to questions, Draghi acknowledged the recent “moderation” in growth and data, but was at pains to stress that these factors were “temporary” and due to factors such as “bad weather” and the “timing of Easter”. He also asserted that the move towards the ECB’s goals on inflation remain unchanged. Ultimately this seems to have been an ECB meeting that has been something of a non-event, but given that the market has been concerned about the impact of the deterioration in the data, Draghi had an open opportunity to jawbone the euro lower, but seems to have chosen not to take it. This has helped to stabilize the euro.
On a techncial basis, the brief breach of $1.2155 has not been enough to be considered a breakdown (a low of $1.2145 was hit before Draghi’s comments on growth). The hourly chart shows a broken 5 day downtrend whilst also an interesting positive divergence on hourly RSI and hourly MACD lines. The prospects of renewed recovery are still dependent on the near term pivot at $1.2250, whilst bigger overhead supply kicks in around $1.2300. The 10 year Bund yield has fluctuated within the range it has traded in throughout much of today’s session (less than 2 basis points).
So it does not seem that it will be Mario Draghi that drives a downside break on EUR/USD. If anything Draghi has helped to bolster a floor. For now the support (broadly) remains intact, but it will be back on the dollar moves and the yield differentials. And for that, US Q1 growth is key tomorrow.
At Hantec Markets Ltd we provide an execution only service. Any opinions expressed by analyst Richard Perry should not be construed as investment advice or an investment recommendation. This report does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. Forex and CFDs are leveraged products which can result in losses greater than your initial deposit. Therefore you should only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved, seeking independent advice if necessary prior to entering into such transactions.