ECB Quick Analysis: Gloomy Lagarde lays ground for stimulus, next euro moves depend on covid

ECB President Lagarde has laid down a gloomy picture of the economy under the second covid wave.
She committed to providing additional stimulus measures in the December meeting.
EUR/USD is set to remain under pressure and focused on coronavirus statistics.

Yohay Elam FXStreet

"We are not going to stand still" – the words of Christine Lagarde, President of the European Central Bank are weighing on EUR/USD, sending it to the lowest in a month.

The Frankfurt-based institution's decision is taking place one day after both Germany and France announced new lockdowns to stem the surge of COVID-19. Lagarde acknowledged the danger in full, saying that the virus resurgence presents new challenges and already causes caution on the part of consumers.

It is also weighing on business sentiment and may cause fourth-quarter Gross Domestic Product to turn negative. Lagarde noted that high-frequency data is clearly pointing to softening.

The ECB's mandate is price stability, and there is no silver lining from that front – the Consumer Price Index is set to remain negative until early 2021.

The president, now celebrating one year at the helm, said that the bank is waiting for staff projections due out in December and will then "calibrate their measures" – add more stimulus. EUR/USD reacted by hitting 1.1679, the lowest in a month.

An unequivocal gloomy message from the ECB and a commitment to act have sent the euro lower, but is it all priced in? The bank clarified the tie between covid, the economy, and its policy. Therefore, the next moves by the common currency depend on virus figures – and if they result in more restrictions or a gradual return to normality.

For EUR/USD, the next immediate moves heavily depend on the US elections, where uncertainty is reaching higher levels.

More: How three US election outcomes (and a contested result) could rock the dollar

Author

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

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