|

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. 

"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

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.

More from Yohay Elam
Share:

Editor's Picks

AUD/USD sits at three-week highs above 0.7000 on hawkish RBA-speak

AUD/USD holds a positive bias for the fourth straight day, trading above 0.7000 in the Asian session on Wednesday and at three-week highs. RBA Deputy Governor Andrew Hauser's hawkish remarks and inflation concerns underpin the pair. However, the upside appears capped as the US Dollar attracts some buyers amid looming US-Iran uncertainty.

USD/JPY remains confined in a familiar range below 158.50

USD/JPY sees some dip-buying in the Asian session on Wednesday, though it remains confined within a multi-week range near 158.50 as the uncertainty over the timing of the next BoJ rate hike keeps Japanese Yen bulls on the defensive. Meanwhile, hawkish Fed expectations, bolstered by inflation risks stemming from volatile oil prices, underpin the US Dollar. However, looming intervention fears could limit JPY losses and cap the currency pair.

Gold appears slightly bid above $4,100

Gold prices manage to reverse three consecutive daily declines, trading just above the $4,100 per troy ounce on Wednesday. The yellow metal’s recovery comes amid a humble advance in the US Dollar, mixed US Treasury yields across the board and a widespread cautious tone from the US-Iran front.

Bitcoin eyes a break above $85,000 as institutional demand returns

Bitcoin edges higher above $83,000, extending its rebound from the 50-day EMA near $80,786. US-listed BTC spot ETFs recorded over $23 million in net inflows on Tuesday, following Monday's $526 million, signaling a return of institutional demand.

What November 3 means for the Fed's rate path and the US Dollar

The USD faces a decisive period ahead of the November 3 midterm elections. While markets anticipate another interest rate increase from the Fed in December, the battle for control of Congress could reshape fiscal policy expectations and, indirectly, the path of US monetary policy in 2027.

The US Dollar fell. Gold didn't rally. That tells you everything
Gold (XAU/USD) is struggling to capitalize on a weaker US Dollar (USD), after repeatedly failing to establish itself above the $4,200 level. The precious metal remains confined to a relatively narrow trading range despite a combination of developments that would normally support higher prices.