ECB Monetary Policy Unchanged; Inflation Remains a Concern
EUR Talking Points
- No change in the ECB’s monetary policy.
- EUR traders will listen carefully to Mario Draghi’s press conference for any clues on the central bank’s stance towards a lack of price pressure and the current level of the single currency.
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ECB Leaves Monetary Policy Unchanged
The European Central Bank left all monetary policy levers untouched Thursday in line with market expectations.
The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility remain unchanged at 0.00%, 0.25% and -0.40% respectively. The asset purchase program was left untouched at EUR30 billion a month until the end of September 2018.
The central bank repeated that the bond buying programme can be increased in size and/or duration if necessary. They also reiterated that they expect their key interest rates to remain at their present levels for an extended period of time and well past the horizon of the bond buying programme.
EUR/USD Price Chart One Minute Timeframe (January 25, 2018)
Attention Turns to The ECB Press Conference
ECB President Mario Draghi is expected to be quizzed on the latest strength of the single currency and the impact it is likely to have on inflation expectations. The central bank’s mandate of achieving inflation rates below, but close to 2.0% over the medium term, are under threat from a red-hot EUR, especially against a weak US dollar complex. President Draghi may have to adopt a slightly more dovish tone, despite a strong economic backdrop, to prevent the single currency from pushing even higher and further dampening inflationary pressures. Inflation in the single-bloc is currently running at 1.4%, a level that may be still too low for Draghi to hint at easing or ending the ongoing bond buying programme.
EUR/USD Sentiment Indicator Throws Out Mixed Signals
IG Client Sentimentdata show 33.0% of traders are net-long with the ratio of traders short to long at 2.03 to 1. The number of traders net-long is 2.8% lower than yesterday and 7.8% higher from last week, while the number of traders net-short is 0.4% lower than yesterday and 3.4% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.
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--- Written by Nick Cawley, Analyst
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