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ECB - Boost for EURUSD 25th July

Razvan Mihai

Analyst

ECB - Boost for EURUSD 25th July

Today’s ECB monetary policy meeting acted as a boost for the EUR, though the overall outlook doesn’t look bright. As key points to take from Draghi’s Q&A at the press conference we found:

  • Outlook is getting worse and worse

  • Previous forecasts showed rebound in Q2 but now incoming signs show weakness

  • The balance of risks is on the downside

  • We don't like what we see on the inflation front

  • Any rate cut would come with mitigating measures

  • No discussion about cutting rates today

  • Want to see the next round of projections before taking action

  • It's difficult to be gloomy today

  • The risk of recession is pretty low

  • If weakness continues, fiscal policy becomes of the essence

  • Looking forward to what the committee comes up with (on options for easing)

Euro got some fuel from the comments about mitigating action and also from the comment that there was no discussion of a rate cut today. 

On the charts we can see that EURUSD reached a 2 year low, very close to 1.1100, before the press conference and rebound shortly after more than 80 pips, to retest the previous support area. Currently the price fell back towards a local support and is trading at around 1.1150. 

Though the Q&A gave the EUR a boost, the overall fundamentals does not look good for the Euro Area, meaning the rally could have ended and the Euro now could go back to reaching new lows. A break below this local support would confirm the bearish scenario.



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