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Concerning Words from ECB President Draghi

Concerning Words from ECB President Draghi

Boris Schlossberg, Technical Strategist

The EURUSD sold off early Wednesday on the back of a candid yet concerning speech from ECB President Mario Draghi, who warned that the Bank alone does not have the tools needed to create real economic growth.

In what was an especially quiet summer night in the currency markets, high-beta FX drifted lower with the euro (EUR) and British pound (GBP) suffering the brunt of the losses. The EURUSD broke below the key 1.3050 support level in the wake of a rather dovish speech by European Central Bank (ECB) President Mario Draghi in Paris.

While speaking in front of the committee in the French lower house of parliament, Draghi reaffirmed many of his familiar points, noting that the ECB "stands ready to act again when needed." However, he also warned "The ECB has done as much as it can to stabilize markets and support the economy…Now governments and parliaments need to do all they can to raise growth potential."

Draghi added "Monetary policy cannot create real economic growth…If growth is stalling because the economy is not producing enough or because firms have lost competitiveness, this is beyond the power of the central bank to fix."

That last statement is what caused the selloff in EURUSD, as currency traders took Draghi's words to heart, clearly concerned that the ECB will not impart any additional stimulus in the region. The euro dove deeper through the 1.3050 level, and shorts may now target the psychologically important 1.3000 level, especially if US data including final GDP figures and the personal spending report continue to surprise to the upside.

More: See the complete Economic Calendar

Political Change Sweeps Across Australia

Meanwhile, in Australia, Prime Minister Julia Gillard lost her leadership role in the Labor party and will now retire from politics. Ms. Gillard's approval rating was in the 30's, creating massive concern among the party faithful. Kevin Rudd will now take over as Prime Minister ahead of the Parliamentary elections in the next few months.

The news saw AUDUSD strengthen above the .9300 level, but the pair was unable to hold the figure for the time being. Nevertheless, the Australian dollar (AUD) has firmed on a relative basis, with EURAUD down more than 150 points on the day.

By Boris Schlossberg of BK Asset Management

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.