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Currency Analyst since 2010

What Draghi's words mean for EUR/USD

By Elizabeth Belugina

EUR/USD traded in a very volatile manner because of the ECB’s meeting. The European Central Bank left policy unchanged: the main refinancing rate stayed 0.0%, deposit rate remained at -0.40% and monthly QE volume still accounts for 80 billion euro.

During the press conference the ECB President Mario Draghi the following things:

-      The ECB sees rates at present or lower levels for extended time. The central bank will continue bond purchases until it achieves sustained inflation. The ECB will use all instruments if needed.

-      Broad financing conditions have improved, but euro area risks still to the downside.

-      Inflation could turn negative soon, but will improve later this year.

As for the negative interest rates, Draghi tried to sound vague, but not hawkish. According to him, there are no signs that negative rates have hurt banks' net interest income and that their effect was largely positive.

All in all, Draghi confirmed that monetary policy in the euro area will remain accommodative. This factor should limit EUR on the upside, However, as long as the Federal Reserve isn’t very hawkish, EUR/USD will continue to have support. Sideways trading seems most likely for the pair. Levels to watch are 1.1375/1.1400 and 1.1460 on the upside and 1.1265/50 ahead of 1.1140 on the downside. 

 

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