EUR/USD whipsaws on the decision as traders balance out the headline and the details of the ECB decision
The euro rose slightly as the ECB kept its key rates unchanged today but the details were as dovish as one can be with the central bank adjusting its forward guidance to allow for rate cuts and also putting in a mention of rate tiering and QE in there.
EUR/USD made a high of 1.1161 before falling to a low of 1.1115 on the day as traders continue to digest the decision awaiting for Draghi’s press conference at 1230 GMT.
The statement also made a mention that inflationary pressures “have been persistently below levels that are in line with the central bank’s aim” and that as long as that continues, they will be “determined to act” and “adjust all of its instruments, as appropriate”.
Add that alongside rate tiering and QE, that will no doubt set up markets to believe that we could see a rather decent “stimulus package” come about in September.
As for euro price action now, it’s over to Draghi and I would expect him to maintain a more dovish tone as well. But with the euro already doing some of the work for him now, he need not be as dovish as one would expect I reckon.
If anything else, he should reiterate similar stuff mentioned in the statement and there isn’t much room to deviate unless he wants to go into more details of the stimulus measures that will be introduced.
As such, just be mindful about his language on the inflation outlook and the central bank’s commitment to ease in September.
For EUR/USD, watch out for the year’s low at 1.1107 and the 1.1100 handle. If that gives way, it could be a slippery slope to the downside over the coming sessions.