The risks of the EUR / USD pair correction continues to increase. The EUR / USD pair fell to the lowest level for the last three months after the announcement of the results of the ECB meeting.
The EUR / USD pair fell to the lowest level in the last 3 months after the announcement of the results of the ECB meeting. A press conference by Mario Draghi and reports that the US House of Representatives, following the Senate, approved the draft law on the budget for the next financial year, which opens the way for implementation tax reform. The European Central Bank has decided to reduce the volume of purchases of assets under the quantitative easing program from 60 billion to 30 billion euros per month. The QE program will last at least until the end of September 2018 and it can be expanded if necessary. The Governing Council will decide with regarding inflation to prolong the program or not, which will slow from 1.5% to 1.4% next year according to his forecasts.
Mario Draghi managed to convince the markets that the verdict of the ECB for the month of October should be regarded as an act of monetary expansion. The Quantitative easing that started in early 2015 should end in December 2017. Its extension is an additional incentive rather than a withdrawal of the stimulus. Although the market expected that the scale of the asset purchase program would be reduced by 30 billion euros. Nevertheless, it was a question of starting the normalization. This process assumes the end of QE with a gradual transition to an increase in the refinancing rate and the deposit rate. Alas, but after the performance of Super Mario, we are not able to talk about the finiteness. This is why the futures market reduced the chances of the ECB monetary policy tightening in 2019.
Forecasts for ECB rates
Source: Nordea Markets.
Despite the fact that Draghi was confident during the press conference, there was an actual lively discussion inside the Governing Council. Bloomberg and the Wall Street Journal referring to competent sources at the ECB have expressed their disagreement with the desire of the others to obscure the timing of the completion of QE. A little later, their names were leaked to the press. We are talking about the head of the Bundesbank Jens Weidmann, as well as Sabina Lautenschlager, Klaas Knot, and even Benoit Coeure.
Regardless of the discussion, decisions are made by a majority vote. The European Central Bank is dubious on the ability of inflation to reach a target of 2% before 2020. Hence, Draghi preferred to be reinsured and put the cap over the EUR / USD rally near 1.2. Certainly, political risks were taken into account to be connected, primarily with the events in Catalonia and with the upcoming spring 2018 Italian elections. Low-interest rates on debt obligations, weak euro and the growth of stock indices of the Old World to 5-month highs have improved financial conditions, which is a favorable factor for further economic growth. No wonder that the ECB raised its forecasts for the eurozone’s GDP by 2017 from 1.9% to 2.2% and by 2018 from 1.8% to 1.9%.
Technically, the correction in the main currency pair risks continues in the direction of the target by 161.8% on the AB = CD pattern. It corresponds to 1.152. The nearest resistance levels should be found near 1.167 and 1.1695.
EUR / USD, daily chart