ECB Recap Draghi Sticks to the Script EURUSD Bears Eye 16Month Low Near 113

As my colleague Fawad Razaqzada noted earlier this morning, there was little reason for the European Central Bank to provide a boost to the euro and that the odds favored a slightly more dovish tone (see “Will ECB Drag EUR/USD Lower?” for more) …and that’s exactly what we’re seeing in the wake of the meeting.

ECB President Draghi generally stuck to the script in his press conference, giving no hints that the central bank would reconsider its plan for monetary policy after the run of weak economic data. Draghi did note that the economic data has been “somewhat weaker” than anticipated, but that it was consistent with the ECB’s outlook and not necessarily a prelude to an economic downturn.

In noting that the economic risks remain balanced, he also highlighted concerns about Brexit, trade, and Italy, though he did express optimism that a deal on Italy’s budget would be reached. The ECB should have more clarity on all three of these issues (as well as the recent slowdown in economic figures) by its December meeting, and while Draghi and Company are still highly likely to wind down the central bank’s asset purchases by the end of the year, Draghi did mention targeted long-term repo operations as a possible non-QE stimulatory policy that the ECB could adopt if needed.

Market Reaction

The yields on both German Bunds and Italian BTPs ticked higher as Draghi spoke (indicating selling in the sovereign bonds) but have since retraced most of those moves. Mirroring the move in yields, EUR/USD initially ticked up to new daily highs at 1.1430 before reversing to trade at a fresh 10-week low under 1.1370 as of writing.

Moving forward, EUR/USD remains in a broad 1.13-1.18 range with both the longer-term trend (leading into the range) and the short-term trend (since the late September peak) pointing lower. Bears will likely look to push the pair down to retest the 16-month low near 1.1300 next, with a break below that level opening the door for more weakness toward 1.10 or 1.11.

Source: TradingView, FOREX.com

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

Contracts for Difference (CFDs) are not available to US residents.

FOREX.com is a trading name of GAIN Capital - FOREX.com Canada Limited, 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA is a member of the Canadian Investment Regulatory Organization and Member of the Canadian Investor Protection Fund. GAIN Capital – FOREX.com Canada Limited is a wholly-owned subsidiary of Stonex Group Inc.

Complaints are taken very seriously at FOREX.com. You can view our complaints procedure here.

Know your advisor