The Eurozone economy recovered in Q2, after the lock-down crash in Q1, although the recovery was weaker than in other places, like the US or China. The recovery didn’t even last much, as services are back in contraction since September, while the coronavirus restrictions are increasing, increasing tensions in European cities.

The ECB is also turning increasingly dovish, as Lagarde confirmed a while ago, hinting at more monetary stimulus coming up. EUR/USD is tumbling lower for the second day and it should crash further in the weeks ahead, as US and Europe diverge further.

ECB President Christine Lagarde Statement

• Virus resurgence presents new challenges
• Recovery losing momentum faster than expected
• Consumers are cautious in light of pandemic
• Cites ‘clear deterioration’ in near-term outlook
• Virus is weighing on business investment
• Commits to keeping programs in place at least until covid is over

Lagarde’s Comments in the Q&A

• Recalibration means looking at all our instruments
• Don’t assume it will be one instrument, we will look at them all
• We acted for the first wave, we will act for the second wave
• Emphasizes unanimity in the Governing Council to take action at the next meeting
• GDP tomorrow ‘might surprise on the upside’
• GDP in Q4 will be soft. Will it be negative? We don’t know yet
• November will be very negative
• Not foreseeing deflationary risks ‘at all’
• We will be very attentive to the impact of pandemic on risks
• Banks are anticipating tighter lending conditions
• Will frontload PEPP purchases if needed
• There’s little doubt the ECB will act in Dec