Post ECB Meeting, EURO Stays Higher As Dollar Returns Lower on GDP Miss

The outcome of the ECB meeting was essential as expected. Policymakers admitted that inflation was higher than expected, but they minimized the need to raise rates sooner. All monetary policy measures remained unchanged, with the main refinancing rate, marginal lending rate, and deposit rate all remaining unchanged at 0%, 0.25 percent, and -0.5 percent, respectively. The PEPP has progressed as planned and is expected to be completed in March 2022. Following the end of the PEPP in March 2022, the December meeting will see updated economic predictions and a formal announcement of the asset acquisition plan.

As ranging trading persists, major pairings and crosses have remained trapped within yesterday’s range. The ECB’s press conference looks to have raised the euro somewhat, but there is no follow-through purchasing. The dollar is also somewhat weaker after the release of worse-than-expected Q3 GDP statistics. With an eye on broader risk sentiment, commodities currencies are the softer ones.

Following the conference, the EURUSD surged higher. While some of this can be ascribed to USD weakening following poor GDP statistics, the market does not appear to be impressed by the ECB’s inflation forecast. Indeed, according to the most recent data, German inflation jumped to +4.5 percent y/y in October, the most in over three decades, up from +4.1 percent the month before. This was higher than the consensus of +4.4 percent.

In terms of technicals, the Euro would be back in the spotlight for the rest of the week. The rebound from 1.1523 will be resumed if the minor resistance of 1.1668 is broken. A break of the minor resistance level of 0.8467 in the EUR/GBP suggests a short-term bottoming at 0.8401. In the EUR/AUD, a breach of minor resistance around 1.5598 will also signal a short-term bottoming at 1.5393. If all of these levels are broken, the Euro will be on the verge of mounting a broad-based near-term rebound.

ECB Maintains Stance, Continues PEPP at a Slower Pace

As expected, the ECB maintained its monetary policy steady. The marginal lending facility and deposit facility interest rates will stay at 0.00 percent, 0.25 percent, and -0.50 percent, respectively. The forecast remains unchanged.

“The Governing Council expects the key ECB interest rates to remain at their current or lower levels until it sees inflation reaching two percent well ahead of the end of its projection horizon and durably for the remainder of the projection horizon, and it judges that realized progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilizing at two percent over the medium term,” the statement reads. This could potentially indicate a brief spell of considerably above-target inflation.”

PEPP purchases will continue until at least the end of March 2022, with a total outlay of EUR 1850B. Net asset acquisitions will continue to be “moderately slower” than in Q2 and Q3. Purchases of APPs will also continue at a monthly rate of EUR 20 billion.