Euro Turns More Bearish, After Lagarde’s Dovish Remarks - Forex News by FX Leaders

Euro Turns More Bearish, After Lagarde’s Dovish Remarks

Posted Thursday, October 29, 2020 by
Skerdian Meta • 2 min read

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
These are downbeat comments and certainly underscore that more action is coming in December. But how much ammunition do they have?
  • High frequency data point to softer activity in Q4
  • Inflation to remain negative until early 2021
  • Recovery in demand to put upward pressure on prices

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

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About the author

Skerdian Meta // Lead Analyst
Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.
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