Euro initially dives after ECB leaves door open for rate cut in the statement. But it quickly recovers as President Mario Draghi is not as dovish in the press conference. Most importantly, there was no discussion on rate cuts today. Additionally, no unanimity was achieved among policy makers regarding the next move, just “convergence” of views. The comments argue that there is a lack of urgency for any action. And, September’s decision could be live, depending on upcoming economic projections.
On the economy, Draghi said slower growth outlook “mainly reflects the ongoing weakness in international trade in an environment of prolonged global uncertainties, which are particularly affecting the euro area manufacturing sector.”On the other hand, “activity levels in the services and construction sectors are resilient and the labor market is still improving.”
Nevertheless, risks “remain tilted to the downside, reflecting the prolonged presence of uncertainties related to geopolitical factors, the rising threat of protectionism, and vulnerabilities in emerging markets.” Incoming data continue to point to “somewhat slower growth” in Q2 and Q3.
“Inflationary pressures remain muted and indicators of inflation expectations have declined.” But, over the medium term,”underlying inflation is expected to increase, supported by our monetary policy measures, the ongoing economic expansion, and stronger wage growth.”
EUR/USD could have defended 1.1107 low after brief breach to 1.1101 resistance. Stronger rebound should be seen back to 1.1193/1.1282 resistance zone.
