ECB aftermath: Rates and policy unchanged; EUR/USD resumes the upside

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ECB aftermath: Rates and policy unchanged; EUR/USD resumes the upside

The European Central Bank decided to leave interest rates and most policy measures unchanged on today’s meeting according to a press release published by the bank and the post-meeting conference by Christine Lagarde, ECB boss.

On Thursday, July 16, the European Central Bank held its monthly monetary policy meeting. It decided to maintain its main interest rate at 0.0 percent, its deposit rate at -0.5 percent.

The ECB will continue its purchases under the PEPP with a total envelope of 1,350 billion euros. PEPP will remain alive at least until June 2021. The APP program will continue at a monthly pace of 20 billion euros plus an additional 120 billion euros until the end of the year. It will also continue to fully invest maturing securities across the end of 2022.

An uncertain forecast – A COVID-19 second wave on the table

In terms of forecast, the central bank now expects the Gross Domestic Product to collapse by 8.7 percent in 2020 and recover 5.2 percent in 2021. Inflation to pick up in early 2021.

“Euro area activity is expected to rebound in the third quarter,” Lagarde said in her opening statement. “As the containment measures are eased further, supported by favourable financing conditions, an expansionary fiscal stance and a resumption in global activity, although uncertainty about the overall speed and scale of the rebound remains high.”

However, as Christine Lagarde said in her opening statement, the outlook remains highly uncertain amid the ongoing COVID-19 pandemic. In the end, the ECB president defended the ECB’s actions and asked governments to do more without creating panic.

Lagarde also acknowledged that the second coronavirus wave in the United States is a concern and that the European Central Bank’s baseline forecast takes a second wave of COVID-19 in Europe into account.

Long story short, the European Central Bank admitted that the forecast remains unclear, but it focuses on a V-shape recovery starting in the second half of 2020.

Regarding monetary policy measures, the bank remains in wait and see mode but ready to act. Lagarde also stressed governments to do more.

“The Governing Council continues to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner, in line with its commitment to symmetry,” the decision’s press release said.

Euro reacts to the upside after the ECB meeting

EURUSD daily chart July 16

After a lethargic pre-ECB performance, the euro resumed its uptrend against the US dollar after the Lagarde press conference. EUR/USD is now trading positive for the fifth session in a row. It looks ready to take on the 1.1450 area, close to the highs of March 10.

Currently, the EUR/USD is trading at 1.1440, which is 0.25 percent positive in the day. The chart is clearly positive, with MACD pointing to the upside and a decent momentum installed. Moving averages are also aligned to the north.

Among the most critical catalysts for the EUR/USD upside is the weakness of the Greenback. The US dollar index is extending declines for the fifth day. After performing a recovery earlier today, the DXY gave up on its gains, and it returned to the negative path.

DXY is now trading at 95.93, which is 0.12 percent negative on the day and near its lowest level since June 10 at 95.78.

Back to the euro, another good fundamental reason for the EUR/USD to go up was the good number in the retail sector in the United States.

According to the US Census Bureau, retail sales in the United States rose by 7.5 percent in June, well above the 5 percent increase expected by the market. Ex-autos, retail sales advanced by 5.6 percent, again, above the 3.6 percent expected by experts.

However, 1.3 initial jobless claims were reported for the July 10 week. Above the 1.2 million expected. It pushed the dollar down as fears of an ongoing second wave of the new coronavirus hurt market sentiment, fueling hopes for more stimulus from the US government and then more dollars injected into the economy.

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