Friday July 21, 2017 - 17:22:21 GMT
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EURUSD Spikes Higher Despite A Dovish Draghi
John M. Bland, MBA
ECB Continues To Worry About Inflation The EURUSD was rising as the Draghi press conference following the ECB policy wore on. This left many casual observers of the forex market scratching their heads. As promised, the ECB policy decision turned out to be a major event for forex trading. The few traders who had been looking for a more hawkish Draghi were disappointed once again, while those expecting a dovish Draghi were correct in terms of his performance, but were squeezed out when markets did not react by selling the EURUSD afterwards.
It came as no surprise to knowledgeable observers that the European Central Bank would keep policy steady at its meeting last Thursday. The central bank kept its deposit rate at -0.40%, its refi rate at 0%, and held the level of asset purchases steady at EUR60bn a month until at least the end of the year.
In its policy statement the central bank repeated that interest rates are expected to remain at present levels for an extended period of time, and well past the expected time horizon of the net asset purchases. This is one area where the ECB and Fed differ. The Fed started to raise rates well before it fully ended its QE program. In fact it still continues to reinvest maturing QE holdings well after it moved into a rate tightening phase. The ECB continues to lag the Fed as it reaffirmed no change to the easing bias of its QE.
The ECB has a single policy mandate, which is to manage inflation. Its target is an inflation level of just below 2% in the medium term. Unlike the Fed it does not have a growth or full-employment mandate. Draghi mentioned the fact that inflation continues to undershoot the central bank’s target. He cited falling energy prices weight on consumer prices.
President Draghi indicated that there would be a discussion of the QE program in the fall. But he was coy about whether the next ECB meeting on September 7 would be technically be in the fall. Draghi appears next at the Jackson Hole, Wyoming symposium on August 24-26. There have been occasions when central bankers have made major announcements at this meeting, but I doubt it in this case. The current ECB taper runs out at the end of this year so the ECB still has some leeway to wait to see what will happen before it must make a decision about what to do at the start of the new year.
Amazing Trader EVENT RISK Calendar:
Mon 24 Jul
All Day flash PMIs
14:00 US- Existing Homes Sales
Tue 25 Jul
08:00 DE- IFO Survey
14:00 US- CB Consumer Confidence
Wed 26 Jul
07:30 AU- CPI
08:30 GB- GDP
14:30 US- EIA Crude
18:00 US- Fed Decision
Thu 27 Jul
12:30 US- Weekly Jobless
Fri 28 Jul
12:30 US- GDP
14:00 US- University of Michigan
Be sure to refer daily Global-View to see the continuously UPDATED Economic Calendar and the Forex Forum for the complete list of key items (actual data, selected charts, etc.) as they are released.
John M. Bland
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