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Euro pops higher as ECB may consider shift in guidance

Summary:

  • ECB account illustrates a bit more hawkish stance presented by central bankers
  • Euro jumps higher as ECB could consider a gradual shift in guidance from early 2018
  • German 10Y yield moves to the highest since the summer 2017

The single currency got a quick boost following the account from the latest ECB meeting taking place in the past month. At the same time the German bunds declined suddenly pushing the 10Y yield back to 0.55%. The most important headlines are as follows:

  • ECB could consider gradual shift in guidance from early 2018
  • ECB saw ’some comfort’ in wage dynamics but inflation a concern
  • ECB agreed communication must change if reflation continues
  • A few council members repeated their reservations about October decision
  • Language on monetary policy and forward guidance to be revisited at the beginning of this year
  • Wide agreement among members that current monetary policy stance is appropriate

The healthy jump seen in the common currency seems to stem mainly from a remark pertaining to a possible shift in forward guidance which cold take place as soon as the beginning of 2018. It increases a chance that the ECB will remain on course to end the APP yet this year making the first interest rate hike a bit less distant. On the flip side the comment regarding wage growth and inflation appears to be somewhat bizarre as the Governing Council claims that wage dynamics are quite comfortable but inflation still lags behind its price goal. To sump up, the account makes the upcoming ECB meeting (25 January) definitely more interesting lessening chances we will get another non-event.

link do file download linkThe German 10Y yield jumped to the highest since late July 2017 following the more hawkish than anticipated ECB minutes. Source: Bloomberg

In response to the minutes the euro jumped immediately back toward a 1.20 handle, buyers could have a though task to move further though. Looking beyond the FX one needs to underline that bond traders chose to close their longs pushing the German 10Y yield to the highest level since late July 2017.

link do file download linkThe euro advanced after the ECB account albeit buyers could have a hard nut to crack. A breakout above a resistance could pave the wave for subsequent gains but it seems to be less likely at this stage. Source: xStation5

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