The risk of the pair EUR / USD correction continues to increase. The EUR / USD pair dropped to its lowest level since three months after the announcement of the results of the ECB meeting.
The pair EUR / USD has fallen to its lowest level in the last 3 months, after the announcement of the results of the ECB meeting. A press conference of Mario Draghi and the reports of the united states House of Representatives, following the Senate, has approved the draft law on the budget for the next fiscal year, which paves the way for the implementation of the tax reform. The European Central Bank has decided to reduce the volume of asset purchases under the quantitative easing program from $ 60 billion to 30 billion euros per month. The QE program will last until at least the end of September 2018 and may be extended if necessary. The Board of Governors decides, in relation to the inflation to extend the program or not, which will slow from 1.5% to 1.4% next year according to forecasts.
Mario Draghi has 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 began at the beginning of 2015 is expected to be completed in December 2017. The extension is an additional incentive rather than a withdrawal of stimulus measures. 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 standardization. This process implies the end of QE, with a gradual transition toward an increase in the refinancing rate and the deposit rate. Alas, but after the performance of Super Mario, we are not able to speak of finitude. This is why the futures market reduces the chances of the ECB’s tightening of monetary policy in 2019.
The forecast for the ECB rate
Source: Nordea Markets.
Despite the fact that mario Draghi was confident during the press conference, there was a real lively discussion inside the Board of Governors. Bloomberg and the Wall Street Journal referring to competent sources at the ECB, have expressed their disagreement with the desire of the other to obscure the time of the end of QE. A little later, their names have been 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, the decisions are taken by a majority vote. The European Central Bank is dubious about the ability of the inflation to reach a target of 2% until 2020. Therefore, Draghi preferred to be reinsured and put the cap on the EUR / USD rally close to 1.2. Of course, the political risks have been taken into account, especially with the events in Catalonia and with the arrival of spring 2018 Italian elections. Low interest rates on the debt, the weakness of the euro and the growth of the stock indexes of the Old World to 5-month highs have improved financial conditions, which is a positive factor for continued economic growth. It is not surprising that the ECB has raised its forecasts for the euro area of 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 of the pair of risks continues in the direction of the target, the 161.8% AB = CD pattern. It corresponds to 1.152. The closest levels of resistance should be found near 1.167 and 1.1695.
The EUR / USD, daily chart