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Dovish ECB sends EURUSD sub 1.13 and near multi-year lows


  • ECB launch a new TLTRO programme

  • Large downwards revisions to GDP and inflation forecasts

  • EURUSD falls near key support; Bank stocks under pressure

There’s been some sizable moves seen in response to the latest ECB rate decision, with the Governing Council performing a pretty dramatic Dovish turn by slashing forecast for both growth and inflation as well as announcing further stimulus in the form of a Targeted Longer-Term Refinancing Operations (TLTROs). This is now the third time the central bank have chosen to implement what in effect is an injection of liquidity into the banking sector in an effort to provide further stimulus. The single currency has come under pretty heavy selling pressure since the news broke, bond yields have fallen and stocks have pared there initial moves higher with the banking sector in particular on the slide.

The EURUSD has dropped by around 70 pips since the rate decision and the market is approaching prior lows near 1.1220. Source: xStation


As was almost unanimously expected, all key interest rates were kept unchanged at record low levels with the ECB also stating that this would remain the case until at least the end of this year. Key lines from Draghi’s opening statement were as follows:

  • ECB decision aimed at lifting inflation

  • Underlying inflation remains muted

  • Governing Council stands ready to adjust all instruments as appropriate

  • Risks to economic outlook still tilted to the downside

  • Inflation to decline towards the end of the year


The overall tone here is more downbeat than many expected and when taken with the following downward revisions to GDP and inflation, appears to signal a clear dovish shift amongst rate-setters.


GDP forecasts:

2019: 1.1% vs 1.7% prior

2020: 1.6% vs 1.7% prior

2021: 1.5% vs 1.5% prior


Inflation forecasts:

2019: 1.2% vs 1.6% prior

2020: 1.5% v 1.7% prior

2021: 1.6% vs 1.8% prior


A long term view of the EURUSD can be reached by using a weekly chart and the significance of the 1.1220 level is readily apparent. Price is now also back below the 200 week SMA. The market has been in a fairly narrow range for several months now, but the latest declines threaten to cause a breakout to the downside.

If the market breaks below 1.1220 then you’d have to go all the way back to 2017 to find lower prices. Source: xStation




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