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EURUSD bounces from 5-week low near 1.13 as ECB stand pat

15:36 24 January 2019

Summary:

  • ECB keep all rates unchanged as widely expected

  • Draghi strikes dovish notes, but stops short of any fireworks

  • EURUSD dips to 1.13 before bouncing. Lowest level in 5 weeks


The first ECB meeting of the year, and also the first since the bank ended their asset purchase programme, has seen a seesaw in the single currency, which initially fell back before recovering to trade higher once Draghi ended his speech. As was widely expected, the bank chose to keep all three of its main rates unchanged as follows:

 
  • Main refinancing rate: 0.00%

  • Marginal lending facility: 0.25%

  • Deposit facility: -0.40%

 

At the same time as announcing the rates the latest policy statement from the ECB was also released, in what was an almost carbon copy of the previous statement. The only real difference was the date in the heading and also the omission of the line relating to the end of the asset purchase programme.  

The ECB was little changed from the previous month and as such provided little new information for traders to go off. Source: ECB.europa.eu

 

As is often the case with ECB decisions, the main market moves came during the press conference with Draghi explaining that the meeting was devoted to analysing the slowdown. Initially the markets seem to take the president as erring on the dovish side with the line that “risks to the outlook had moved to the downside” the most noteworthy. Further selected comments were as follows:

 
  • Underlying inflation has been muted

  • We were unanimous in assessing the factors that caused the slowdown, namely the increasing general uncertainty

  • If risks persists, momentum will be weak for long

  • Can’t exclude a more benign economic outcome

 

To summarise, the overall feeling from the event was that the ECB are now adopting a slightly more dovish stance than they were at their last meeting, but the shift doesn’t appear to be that great and is not as apparent as the one seen across the Atlantic in the US. This can be seen by the move in the money markets, with now price less than a 40% chance of an ECB rate hike in 2019 compared to 45% earlier.  

The EURUSD initially dropped to its lowest level since mid-December not long after Draghi began speaking but buyers stepped in to defend the 1.13 handle and there’s been a strong bounce since. This could now be seen as important support. Source: xStation

 

This content has been created by X-Trade Brokers Dom Maklerski S.A. This service is provided by X-Trade Brokers Dom Maklerski S.A. (X-Trade Brokers Brokerage House joint-stock company), with its registered office in Warsaw, at Ogrodowa 58, 00-876 Warsaw, Poland, entered in the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy) conducted by District Court for the Capital City of Warsaw, XII Commercial Division of the National Court Register under KRS number 0000217580, REGON number 015803782 and Tax Identification Number (NIP) 527-24-43-955, with the fully paid up share capital in the amount of PLN 5.869.181,75. X-Trade Brokers Dom Maklerski S.A. conducts brokerage activities on the basis of the license granted by Polish Securities and Exchange Commission on 8th November 2005 No. DDM-M-4021-57-1/2005 and is supervised by Polish Supervision Authority.

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