ECB Forum: Forex Market ahead of Policy Panel – Draghi, Carney, Poloz and Kuroda

The ECB Forum on Central Banking will finish today and promises more fireworks. In fact, today’s salient event includes a Policy Panel with BoE’s Mark Carney, ECB’s Mario Draghi, BoJ’s Haruhiko Kuroda and BoC’s Stephen Poloz, all moderated by Karnit Flug, Governor of the Bank of Israel and due to start at 1330GMT.

Earlier in the day (930GMT), academics and economists will debate on a panel on ‘Business cycles, growth and macroeconomic policy’, chaired by ECB’s VP Vitor Constancio.

The ECB Forum grabbed unusual attraction as of late in response to the unexpected hawkish remarks by President Mario Draghi, who said that reflationary pressures are now prevailing in the region. Furthermore, Draghi noted that the economic recovery is running above trend and is well distributed across the bloc.

However, Draghi also sounded cautious when noted that the central bank still needs to keep the current stimulus unchanged, as inflation dynamics stay ‘more muted than one would expect’. In addition, Draghi suggested that the ECB will have to exert prudence when comes to adjust the current accommodative programme with the incipient recovery of the region.

President Draghi mentioned as well that the ECB stays flexible and could modify its policy instruments amidst the onoging recovery, aiming to tighten the policy stance, ‘but to keep it broadly unchanged’.

Today’s speech by Draghi is unlikely to catch markets off guard (again), while expectations appear leaning towards a more cautious tone albeit in line with recent appreciations.

In the FX space, EUR/USD was the main winner from Draghi’s comments, quickly surging above the critical 1.1300 handle and testing the 1.1370 area early in the European morning, levels last traded in June 2016, a year ago. The abrupt up move echoed in the EUR futures markets, where positioning now points to the likeliness of a fresh leg higher in the offing.

As fresh buyers keep coming to the market, EUR/USD should get ready to face the next relevant hurdle at the 1.1400 mark ahead of the 1.1430 area (high June 24 216) and then 1.1494 (high May 5 2016). Of note, however, is the fact that the pair is approaching overbought levels (RSI at 68 as of writing), which prompt some caution. In the meantime, the bullish cross in the daily MACD (12,26,9) allows for further upside in the near term at least.

About the ECB forum 
The ECB Forum on Central Banking offers a forum for open discussion among central bank governors, academics, specialised journalists and high-level financial market representatives. The theme for 2017 is investment and growth in advanced economies.

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