Draghi Stands Strong, Unmoved on Stimulus | Vantage FX

Draghi Stands Strong, Unmoved on Stimulus

September 9, 2016

As expected, the European Central Bank overnight kept its key interest rate unchanged.

“Our program is effective and we should focus on its implementation.”

Oh Draghi… Stop there, please for your own sake.

As seems to be the norm, the market was hoping for more from Draghi and as what seems like always from our friends at the ECB, they overpromised and underdelivered by failing to extend the deadline for their bond-buying program.

With the Eurozone’s economic growth and inflation rate remaining painfully low, it was thought that an increase in the bank’s stimulus program would be a go. However, Draghi’s assessment was as follows:

“For the time being, the changes are not so substantial as to warrant a decision to act.”

Does he believe that’s the reason why he didn’t pull the trigger though? More importantly for us, does the market believe that’s the reason why?

In the current low rate monetary policy environment, there are always doubts around the effectiveness of any stimulus package, let alone the one in the disaster that is the EU. In any case, the Eurozone’s economic growth and inflation rate remain stubbornly low.

Inflation forecasts are highly important as the bank has a single mandate to target inflation at 2% over the medium term. To put this in perspective, the 2016 forecast was overnight held at 0.2%. The 2017 forecast was also cut from 1.3% to 1.2%. Obviously not boding well for future economic growth!

“We will preserve the very substantial amount of monetary support that is embedded in our staff projections and that is necessary to secure a return to inflation”

Okay Draghi.

EUR/USD Daily:
Click on chart to see a larger view.

Taking a look at some charts, the EUR/USD daily that we discussed yesterday is in the midst of stepping up toward weekly resistance with a series of higher lows.

I’ll leave the intra-day price action for you, but with the ECB relatively unmoved, focus will return to what the Fed is going to do this month and EUR/USD price seems to be limiting its downside because of this.

EUR/JPY Daily:
Click on chart to see a larger view.

I’ve included a slightly confusing EUR/JPY daily chart here, but give it a chance…

The solid trend lines mark the obvious bearish trend in play (within an overall higher time frame bearish trend), while the red zone marks previous support acting as resistance as price steps down inside the channel.

A nice confluence of resistance for price to possibly continue lower, and a chart that we’ll discuss further on the @VantageFX Twitter account today.


On the Calendar Friday:

CAD Employment Change
CAD Unemployment Rate

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Dane Williams – @VantageFX

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