ECB Quick Analysis: Euro rises on Draghi's balancing act, but beware the ides of March


  • The ECB's message is finely balanced between risks and confidence.
  • EUR/USD buys this relative confidence, at least for now. 
  • The door is open to a dovish shift in March.

The European Central Bank left its policy and messages unchanged. The interest rate may still rise in September despite growing signs of a slowdown.

President Mario Draghi balanced between acknowledging the downturn but expressing optimism. 

The dovish points initially weighed on the euro. They are:

  • Growing protectionism and uncertainty about the trade.
  • Slowdown in China.
  • Issues with the German car industry.
  • Brexit uncertainties.
  • A recession in one country can spread.
  • Lower inflation, especially core inflation. 

On the other hand, Draghi was optimistic about other topics, and this sent the euro back up:

  • The labor market is improving.
  • Wages, especially collectively bargained ones, are on the rise.
  • Financial conditions are favorable.
  • Policymakers, such as in China, are taking measures.
  • Falling energy prices leave more money in consumers' pockets.
  • Low chance of a recession.

 

What's next? 

Summing the situation:

Draghi summed it up with two approaches. On the one hand, there are reasons to believe that the slower momentum is temporary with potentially dissipating issues. On the other hand, the ongoing slowdown weighs on confidence.

So what's next?

The Governing Council decided to "give itself more time" to assess if the confidence was hurt or not. 

When will they know?

Maybe in March. They will then have new forecasts made by the ECB staff and see if the slowing momentum is waning or taking hold. 

Kicking the can to March

If the data continue disappointing, there is a good reason to believe that Draghi and co. will find it hard to repeat this balancing act, and may have to say that downside risks have materialized, thus deciding to push back the guidance regarding rates.

So, if we do not see any improvement, Draghi can drag the euro down in March, but the common currency may react beforehand, responding to the data. 

EUR/USD fall and rise:

EUR USD Draghi January 24 2019

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.

Analysis feed

Latest Forex Analysis

Editors’ Picks

EUR/USD hits two-week highs near 1.11 amid trade hopes

EUR/USD is rising toward 1.11, trading at the highest since November 5. Hopes that a US-Sino trade deal may be reached are improving the market mood and weighing on the safe-haven dollar. 

EUR/USD News

GBP/USD reverses and hits fresh lows near 1.2910

The GBP/USD pair dropped from the highest level since Monday at 1.2969 to 1.2912, slightly above Asian session lows. The reversal took place amid a stronger US dollar across the board.

GBP/USD News

USD/JPY bounces-off 50-DMA but lacks follow-through

USD/JPY has bounced up from the 50-day MA support of 108.28. China's Vice Premier Liu He is cautiously optimistic about the prospects of the US-China trade deal. Related markets, however, are not buying Liu He's optimism, keeping the recovery in check. 

USD/JPY News

US Dollar Index looks volatile below 98.00, attention stays on trade

The US Dollar Index (DXY), which tracks the buck vs. a bundle of its main competitors, alternates gains with losses on Thursday around the 97.80/90 area.

US Dollar Index News

Gold: Remains vulnerable below 100-day SMA

Gold seems to have stalled its recent corrective bounce from three-month lows and witnessed a modest pullback from previous support, now turned resistance near 100-day SMA.

Gold News

Forex Majors

Cryptocurrencies

Signatures