Talking Points:
- The European Central Bank finally rolled-out initial details on their plans for stimulus exit, but given the context with which this was done, one must wonder why even embark on stimulus exit at all? The ECB is planning to reduce asset purchases by 15 Billion Euros/month from September-December of this year, at which point asset purchases will stop. The bank went on to say that they’re expecting rates to stay at current levels ‘at least through the summer of 2019,’ dousing hopes for a rate hike in the first half of next year. But, puzzlingly, Mario Draghi said that the economy needs even more stimulus during the press conference, while pledging that the Governing Council remains on standby to do more if needed.
- EUR/USD[1] is trading below a big zone of longer-term support/resistance, and given the backdrop with which this move has happened, that theme may have continuation potential. One of the more bullish factors behind the Euro’s run over the past year was the prospect of stimulus exit followed by higher rates. Now that the ECB has delivered that announcement of stimulus exit, while also dousing the prospect of higher rates in the near-term, that bullish driver may no longer exist, and that could keep the single currency on offer[2] down to lower levels such as 1.1500 or perhaps even 1.1200. The Fed is forecasting five rate hikes to the end of next year[3], and given this morning’s ECB statement, we might see one from the ECB in that span of time. This divergence could remain as a driver in the pair.
