Yesterday we had some major events taking place, with news about the Bank of Japan tweaking its yield curve, the USD Q2 GDP coming in better than expectations and better revisions for Q1 which weighed on EUR/USD, although the change on the ECB sentiment will play out on the longer term for the Euro.
This forex pair lost around 180 pips from top to bottom yesterday as risk sentiment turned negative, while the USD turned bullish. The European Central Bank (ECB) has been keeping a hawkish bias, but with most economic indicators showing that the Eurozone economy is heading into contraction, chances were that the ECB would soften up as well. The statement was revised into a less hawkish approach, which was later confirmed by ECB president Christine Lagarde. As a result, EUR/USD fell below 1.10 and we expect the price to continue slipping lower, so we will try to sell retraces higher.
ECB June Meeting Statement Section Before Changes
“The Governing Council’s future decisions will ensure that the key ECB interest rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to the 2% medium-term target and will be kept at those levels for as long as necessary.”
ECB July Statement With Revisions
“The Governing Council’s future decisions will ensure that the key ECB interest rates will be set at sufficiently restrictive levels for as long as necessary to achieve a timely return of inflation to the 2% medium-term target.”
Q&A with Christine Lagarde Post ECB Hike
- This is the ninth decision to hike in 1 year
- Decision was unanimous
- Slight change of a verb was not random or irrelevant
- We are deliberately data dependent
- We may hike, we may hold
There’s still a hawkish bias here but if the European numbers continue to disappoint and inflation starts to fall quicker, it sounds like they could be done.
- We are not in the domain of forward guidance but we are very strongly rooted in our desire to break the back of inflation
- Notes that there will be two readings of inflation before Sept meeting, we have an opening mind on Sept and beyond
- We have not discussed the reduction of our balance sheet
- Declines to repeat that they’re not even thinking about stopping hiking
- We know we are getting closer but the options of continuing to hike or hold are available
- We only know that we won’t be cutting rates
- Do we have more ground to cover? At this point, I wouldn’t say so
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