The European Central Bank said in its monthly bulletin that the recent Euro strength is a downside risk to inflation, but inflation risks are broadly balanced. The ECB now forecasts that inflation will fall below the current 2% level in the coming months. The ECB also said medium and longer term expectations are in line with the just below 2% ECB target.
The ECB further explained in its bulletin that its inflation expectations allow the central bank to remain accommodative. The bulletin forecasted that economic weakness will continue in the first part of 2013, and reiterated that a recovery should gradually begin later in the year.
The comments in the bulletin reflected ECB President Draghi’s slightly more dovish sentiments in his February press conference that followed the ECB rate decision announcement. The Euro saw a major decline against the US Dollar during that press conference because of the dovish sentiment and the concerns Draghi expressed over Euro strength affecting prices. The Euro-zone GDP for Q4 will be announced this morning, and Germany and France have already announced bigger than expected GDP declines over the final quarter.
The Euro fell back below 1.3400 against the US Dollar in Forex markets following the ECB release and lower than expected Italian GDP. EUR/USD dropped below the level earlier in the session after the German and French GDP releases, and the pair may now see support at 1.3374, by the 50% retracement of the rally from January 10 to February’s high. Resistance might be seen by the 38.2% retracement at 1.3454.
The two-day G20 meeting begins today, and Forex traders should pay attention for any comments on the so-called currency wars, following the Group of Seven’s ambiguous comments on exchange rates on Tuesday.
EURUSD Daily: February 14, 2013
Chart created by Benjamin Spier using Marketscope 2.0
--- Written by Benjamin Spier, DailyFX Research. Feedback can be sent to firstname.lastname@example.org .