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DE30 and EURUSD both higher after ECB 

Summary:

  • EURUSD moves back above 1.20 following ECB
  • Draghi refrains from overtly dovish comments
  • Slight downward revision to inflation but higher growth forecast

After a muted response to the news that the ECB had stood pat and kept their monetary policy on hold attention turned to the press conference with Mario Draghi to provide some information to move the markets, and the Italian didn’t disappoint. 

Draghi stopped short of making any major hints towards the extension or tapering of QE with the statement a near carbon copy on the prior meeting’s which stated that QE will run until December of this year or beyond if necessary.

There was some expectation that the recent rise in the Euro would draw some comment from Draghi and whilst he did mention the currency he stopped short of saying that it was overvalued. In stating that he was confident inflation would return to target and also in only making small downward revisions to the inflation forecast the speech provided a strong boost to the Euro which has since subsided somewhat. 

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 The EURUSD rallied strongly shortly after Draghi began speaking. However, a fair amount of these gains have since been handed back. Source: xStation

The EURUSD has been typically volatile throughout the press conference - with Draghi ironically mentioning at one point that the Governing Council was monitoring volatility in the single currency.

Now the dust has settled the main takeaway seems to be that whilst Draghi was dovish in some sense, he stopped short of going all out and the market reaction has been somewhat muddled.  

The yield on the 10 year Bund (which is inverse to the price) has fallen steadily since the press conference which could suggest that the market hasn’t in fact taken the comments to be particularly not that dovish. A falling yield on the Bund doesn’t support the increase seen in the Euro and could be a warning sign for Euro bulls. 

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 The 10 year German bond (Bund) has risen since Draghi’s speech, implying lower yields and not supporting the latest rise in the Euro. Source: xStation

As far as the DE30 is concerned it has been relatively quiet but is edging higher now once more after the US open. The market broke above a falling trendline that had been capping price for several weeks and should it end the day above 12340 then there is the potential for a sustained move higher to occur. 

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 The DE30 broke above a falling trendline yesterday. A daily close above 12340 would open up the chance of a sustained move higher. Source: xStation

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