Euro Choppy as ECB Holds Rate, Draghi Holds Cautiously Optimistic Tone
THE TAKEAWAY: ECB holds key rate at 0.50%, no new measures > Governing Council “tentatively” optimistic on early stages of recovery, but “subdued” credit growth remains a concern > EURUSD NEUTRAL
The European Central Bank’s post-policy meeting press conference is ongoing, but with the statement having been read and President Mario Draghi’s Q&A session nearly halfway over, the bulk of information relevant to trading has been revealed.
Overall, the tone President Draghi has struck has been decidedly “neutral.” On the plus-side, recent data suggests that regional economies are “tentatively recovering from low levels,” and confirm the “baseline scenarios” that the ECB expects for the rest of 2013. Likewise, medium-term inflation expectations remain “firmly anchored,” despite their tendency to stay below the ECB’s target of +2%.
To balance out the positivity (hawkishness), President Draghi also mentioned two key topics that are holding back the Euro-Zone’s recovery: labor markets continue to struggle despite implementing “whatever it takes” policies to help the region’s financials; and credit growth remains subdued.
Moving away from the commentary, it is worth noting that there was a great deal of time spent on how weak credit growth has been recently – more so than at previous meetings. This is important in light of the fact that liquidity levels are falling back to pre-LTRO1 levels (December 2011).
Why is this important? If risk-aversion picks up and European yields rise, banks will suffer; and more liquidity provisions shouldn’t be ruled out, which would be Euro-negative (as LTRO1 and LTRO2 were). Credit growth (or lack of) should be a focus over the next few months, as the ECB retains its accommodative stance for “an extended period of time.”
Want more of my analysis and commentary? Join my distribution list.
EURUSD 1-minute Chart: August 1, 2013
Charts Created using Marketscope – prepared by Christopher Vecchio
Following the release, the EURUSD traded in a volatile 53-pip range, from $1.3192 to 1.3245. Having opened the press conference at 1.3235, the EURUSD is only marginally lower. Elsewhere, the EURJPY is performing better at ¥130.78 from 130.49; and the EURGBP has recovered off of session lows at £0.8710 from 0.8679.
--- Written by Christopher Vecchio, Currency Analyst
To contact Christopher Vecchio, e-mail email@example.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form