THE TAKEAWAY: EUR European Central Bank Rate Decision > key rate on hold at 0.75%, deposit rate at 0.00% - both unchanged > ECB’s view of growth prospects for region has eroded since last meeting > EURUSD NEUTRAL

The European Central Bank kept its main interest rate on hold at 0.75% today, disappointing a minority of market participants who were expecting the most important actor in the Euro-zone sovereign debt saga to ease its monetary policy further amid a worsening recession. At the past several meetings, ECB President Mario Draghi emphasized that the Euro-zone economy would recover “later in the year,” but as several key PMI readings – especially those in Italy, France, and Spain – have plunged to multiyear lows (unseen since the global financial crisis beginning in 2007), the ECB’s tone has changed to one a bit more dour: President Draghi said that the 2H’13 recovery is subject to greater “downside risks” than previously imagined.

In the absence of a rate cut, President Draghi beat the dovish drum by saying that policy would “stay accommodative as long as needed,” implying that rate cuts down the line shouldn’t be ruled out. It is very possible that the ECB cuts rates in either May or June, as Euro-zone inflation risks remain “broadly balanced.” This sentiment was more or less confirmed – that worsening growth data could prompt the ECB to act – as President Draghi noted that the ECB will continue to “assess data” while “[standing] ready to act.”

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EURUSD 5-minute Chart: April 4, 2013

Euro_Slides_then_Rebounds_During_ECB_President_Draghis_Press_Conference_body_Picture_1.png, Euro Slides, then Rebounds, During ECB President Draghi's Press Conference

Charts Created using Marketscope – Prepared by Christopher Vecchio

At first, the hold in policy boosted the EURUSD starting at 07:45 EST/11:45 GMT, trading up from 1.2820 to as high as 1.2836 right after the press conference started. In the first third of the press conference, the EURUSD slid sharply, from a high of 1.2836 to as low as 1.2744. However, as President Draghi’s tone changed – he dismissed Cyprus as a “template” for future Euro-zone bailouts, while saying that there is “no plan B” for the Euro – the EURUSD started to rally. In fact, after hitting the session low of 1.2744, the EURUSD had rallied back to 1.2820 at the time this report was written, and was continuing to surge at the time of publication.

--- Written by Christopher Vecchio, Currency Analyst

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