ECB to retain a dovish tone - AmpGFX

Greg Gibbs, Analyst at Amplifying Global FX Capital, suggests that with the ECB meeting this week, it is worth noting that the EUR has ended the day lower after each of the last four ECB meetings since October last year. 

Key Quotes

“The ECB has been trying to cool the market’s heels eager to price-in the end of its QE policy and the beginning of rate hikes.  As such, the Draghi press conference has tended to emphasise dovish elements, while still expressing more confidence that inflation would return to target over time.”

“It should worry the ECB that despite the recent moderation in Eurozone economic performance, the EUR has largely remained unresponsive.  The evidence suggests that the EUR strength is contributing to the recent slowing in European economic momentum.”

“We should expect Draghi to highlight strength in the EUR as a risk that requires monitoring, if not something more pointedly linking recent moderation in the outlook to the EUR.”

“There is likely to be little change in Draghi’s introductory statement at the meeting this week; much will hinge on the tone of his press conference.  He is likely to give few hints on what policy intentions are after the current QE program ends in September.  He will probably also leave open the timing of when the ECB will make up its mind.”

“He may indicate that much depends on the developments over coming months.  In this context, he is likely to highlight the risks to growth from protectionist trade policies and the strength in the EUR.”

“The opportunity is there for Draghi to sound confident, but more cautious.  This may extend to five ECB meetings in a row that the EUR weakens on the day.  This time it could have a more sustained impact considering the EUR is testing key support.”