ECB Quick Analysis: Three dovish drags from Draghi that may send EUR/USD down
|- The ECB left its rates unchanged but stressed the need for loose policy.
- Outgoing President Draghi stressed risks are tilted to the downside.
- EUR/USD may suffer despite the USD-related bump.
Mario Draghi's last press conference as President of the European Central Bank reflects his eight-year tenure – dovish. He expressed pessimism about the current situation.
Do not be fooled by the 20-pip rise in EUR/USD – it is related to the US Dollar's weakness – originating from downbeat US Durable Goods Orders for September.
Here are three dovish developments that may keep the euro under pressure:
1) "The latest data shows a further weakening of the economy"
The central banker may be suspected of saying that in order to justify September's substantial stimulus package. He also explicitly said that that rate cut and more bond-buying were necessary.
Nevertheless, Draghi has a point and he detailed the recent worrying signs. Among other figures, he cited Thursday's fresh Purchasing Managers Indexes (PMIs) from Germany, which pointed to a slump in manufacturing.
2) "The main risk is a downturn in the economy"
Draghi's used the word "downturn" and not "slowdown" – and that is a substantial difference. Downturn implies a recession – a shrinking economy. While refraining from using the R-word, he upped the ante.
His successor, Christine Lagarde, may face an outright recession, at least in Germany.
3) "Overall assessment of negative rates is clearly positive"
The sentence above may sound contradictory, but Draghi expressed satisfaction from the policy of negative rates. He also rejected a claim by a reporter, who said that the International Monetary Fund (IMF) rejects negative rates.
His words open the door to further cuts – and this is backed by the IMF, which his successor Christine Lagarde managed until very recently.
Overall, Draghi mentioned the recent past which is depressing, warned of a downturn, and opened the door to new cuts. The negative tone keeps the pressure on the common currency.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.