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Euro Hits 7 Month High on ECB's Draghi, Italy's Letta

Euro Hits 7 Month High on ECB's Draghi, Italy's Letta

Gregory Marks,
  • Draghi reiterates view on Eurozone economy:
  • growth risks remain ‘on the downside’
  • inflation outlook to remain low over the coming months
  • Euro exchange rate is not one of the ECB’s policy targets
  • U.S. budget showdown risk to U.S. and global economy

Despite Mr. Draghi’s attempt to talk the Euro lower last month, his press conference today had the opposite impact with the most telling statements by the ECB President coming from comments on inflation and the Euro exchange rate.

Inflation prints came in at the lowest levels since February 2011 on Monday and monthly readings continue to miss ECB targets to the downside. Mr. Draghi went as far as being bluntly honest in saying that the inflation outlook would remain low over the coming months. All in all, the comments were in line with what most would expect from the head of the ECB. Market participants had been looking for Mr. Draghi to talk up the possible LTRO that he mentioned last week, but were disappointed in not gaining further insight. This development points to an ECB that is only willing to reinitiate an LTRO when it is absolutely necessary and no sooner. With an ECB that is overly optimistic at times, improved confidence prints may have the potential to cloud the central bank’s analysis of the Euro-Zone and delay necessary measures for long-term EU progress.

EUR/USD (5-Minute Chart)

Euro_Hits_7_Month_High_on_ECBs_Draghi_Italys_Letta_body_Picture_2.png, Euro Hits 7 Month High on ECB's Draghi, Italy's Letta

Source: FXCM Marketscope

The EUR/USD pair hit 7 month highs on Draghi’s comments and hit 1.36 for the first time since the 4th of February. One of the strongest moves during the press conference came from comments in response to questions about the Euro exchange rate. Mr. Draghi stated the rate was not one of the ECB’s policy targets and that the central bank was simply ‘attentive’ to developments. During the Draghi press conference, announcements of Prime Minister Letta winning a confidence vote in the Italian Senate hit the wires thus proving further strength for the Euro.

As for event risk for the rest of the week, take note of German and Euro-Zone PMI data out Thursday:

Euro_Hits_7_Month_High_on_ECBs_Draghi_Italys_Letta_body_Picture_1.png, Euro Hits 7 Month High on ECB's Draghi, Italy's Letta

Stay up to date with economic releases and event risk in the DailyFX Calendar.

Gregory Marks, DailyFX Research Team

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