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.”

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EURUSD 1-minute Chart: August 1, 2013

Euro_Choppy_as_ECB_Holds_Rate_Draghi_Holds_Cautiously_Optimistic_Tone_body_x0000_i1027.png, Euro Choppy as ECB Holds Rate, Draghi Holds Cautiously Optimistic Tone

Charts Created using Marketscopeprepared 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

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