ECB not as dovish as markets were expecting
More often than not in recent years, the key takeaway from these ECB meetings is that a hawkish action has been wrapped up in dovish message but that was very much not the case today.
People in the markets seemed convinced that we were heading for a dovish press conference from the soon-to-be outgoing ECB President but Draghi and his colleagues clearly had other ideas. For one, the revisions to the growth and inflation projections were not all negative as some would have assumed, based on recent inflation data and growing global risks. In fact, projections for this year were slightly raised in both cases, which was offset by slight reductions in the years after.
ECB Inflation Projections
2019 – 1.3% (1.2% in March)
2020 – 1.4% (1.5%)
2021 – 1.6% (1.6%)
ECB Growth Projections
2019 – 1.2% (1.1% in March)
2020 – 1.4% (1.6%)
2021 – 1.4% (1.5%)
We looked to be set up for a dovish session when the announcement came, as we were told that the ECB took policy action at the meeting – which immediately sent the euro lower – before being told that rates will remain at present levels through the first half of 2020, while details of TLTRO III were also released. It didn’t exactly live up to the opening line and the euro quickly reversed course to trade higher on the day.
The euro built on the rebound to trade around 1.13 against the dollar – from 1.12 after the announcement – as Draghi proceeded to layout the small changes to the projections and explain that there was an ample degree of monetary accommodation.
EURUSD Daily Chart
OANDA fxTrade Advanced Charting Platform
Of course, as ever with the ECB, there was the caveat that all instruments remain available – including restarting APP – the policy space is there and they’re ready to act in case of adverse contingency. He also stressed that the next move isn’t necessarily tilted towards rate hikes, which may have taken some of the edge off the euro near the highs.
Perhaps the central bank will become more dovish later in the year and lay out future steps once Draghi’s successor takes control but one thing was clear today, the committee was in no mood to panic this month and will wait a little longer before responding to something that hasn’t even yet fully materialised.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years’ experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.
All copyrights for this article are reserved to Market News