- The ECB and President Draghi went fully dovish sending the euro down.
- There are five significant moves that will continue reverberating.
- It is time to look at the next significant downside levels as EUR/USD falls out of balance.
Here are the factors, followed by the levels:
1) Forward guidance: The ECB moved its pledge regarding low interest rates from "through the summer," aka September, to the end of the year. This was expected to happen at some point, but not now.
2) Cheap money to banks: Like the previous decision, a move to provide additional cheap money to banks via the TLTRO program was on the cards, but not so soon. The early move caused some analysts to paint the decision as a "panic move."
3) GDP forecast slashed: The reasoning for the dovish shift came from the new ECB staff forecasts. Forecasts for inflation were cut for 2019, 2020, and 2021. The same goes for GDP growth forecasts, and the downgrade that stood out was for 2019 growth: from a mediocre 1.7% to a meager 1.1%. This reflects the pessimism.
4) Risks are firmly to the downside: Draghi revealed that some members wanted a longer pushback to March 2020 from the end of this year. While this suggestion was not accepted, he reiterated that risks are firm to the downside. A pushback to March next year or beyond is undoubtedly possible.
5) Unanimous decision: The decision was unanimous, including hawks such as Bundesbank President Jens Weidmann. The head of the German central bank is not competing for the top job anymore and may have been more hawkish now that he does not have to please anyone. Nevertheless, he went with the flow.
EUR/USD big levels to watch
The apparent downside target is the 2019 low seen on February 15th which was 1.1234. Further down, 1.1215 was the 2018 trough recorded in mid-November.
Further down, we are back to levels last seen in 2017. 1.1110 was a considerable cushion in June 2017. 1.1025 capped euro/dollar in May that year. The round number of 1.0900 was a high point in March 2017 and the last line, for now, is 1.0810 that was a gap line in the spring of 2017.
Looking up, familiar levels could cap the recovery: 1.1290, 1.1420 and 1.1515 all stand out on the chart.
More: ECB turns dovish changing the forward guidance on rates and launching TLTROs 3.0
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. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
AUD/USD holds above 0.6500 in thin trading
The Australian Dollar managed to recover ground against its American rival after AUD/USD fell to 0.6484. The upbeat tone of Wall Street underpinned the Aussie despite broad US Dollar strength and tepid Australian data.
EUR/USD comfortable below 1.0800 lower lows at sight
The EUR/USD pair lost ground on Thursday and settled near a fresh March low of 1.0774. Strong US data and hawkish Fed speakers comments lead the way ahead of the release of the US PCE Price Index on Friday.
Gold pulls away from daily highs, holds above $2,200
Gold retreats from daily highs but holds comfortably above $2,200 in the American session on Thursday. The benchmark 10-year US Treasury bond yield stays near 4.2% after upbeat US data and makes it difficult for XAU/USD to gather further bullish momentum.
Google starts indexing Bitcoin addresses
Bitcoin address data is live on Google search results after users realized on Thursday that the tech giant started indexing Bitcoin blockchain data. However, mixed reactions have followed the tech giant's reversed stance on the cryptocurrency.
A Hollywood ending for fourth quarter GDP
The latest revisions put Q4 GDP at 3.4%, the second fastest quarterly growth rate in two years. Much of the upside was attributable to stronger consumer spending, yet fresh profits data affirmed it was a good quarter for the bottom line as well with profits up by the most since the Q2-2022.