Talking Points:
- Decoupling of inflation expectations from oil price a matter of concern
- ECB strongly reiterated the need for other policy areas to contribute to measures
- Focus is on the implementation of the additional measures decided in March
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The Euro was unchanged versus other major currencies (at the time this report was written) after today’s ECB Meeting Minutes failed to surprise, and emphasized that the bank’s focus was on the implementation of the additional measures decided in March.
In their latest policy meeting, which was held last month, the central bank decided to keep monetary policy at status quo by keeping rates unchanged and maintaining monthly purchases under the asset purchase programme (QE) at €80 billion.
Looking in to the account of the meeting, the bank said that incoming data pointed to ongoing output growth at a moderate pace, while risks to the growth outlook were still tilted to the downside.
The bank also emphasized the need for other policy areas to contribute to measures, while acknowledging that structural reform recommendations might prove challenging, as needs differed widely across euro area countries. Establishing a detailed country-specific agenda was in the realm of national governments and other European institutions, the bank said.
The bank expressed a concern that inflation expectations are not recovering parallel to higher oil prices, while also emphasizing that the focus is now on the implementation of the additional measures that had been decided in March.
As was mentioned earlier this week by DailyFX Currency Strategist Christopher Vecchio, Euro non-commercial positioning was the least short the Euro since heading into June 2014, which represented potential for a decline in the EUR/USD, with the Fed’s minutes yesterday proving to be a catalyst for such a move, as rate hike speculation for the Fed’s June meeting spiked higher.
Against this overall background, it seems that the ECB account of monetary policy failed to surprise as the bank put the focus on the March meeting decision again, which implies that the ECB might be in a “wait and see” mode. When the minutes hit the wires, the Euro was unchanged versus other majors.
The DailyFX Speculative Sentiment Index (SSI) is showing that about 48.7% of FXCM’s traders are long the EUR/USD at the time of writing. The SSI is mainly a contrarian indicator.
You can find more info about the DailyFX SSI indicator here
EURUSD 5-Minute Chart: May 19, 2016
--- Written by Oded Shimoni, DailyFX Research
