Draghi does not rock the boat, EUR/USD at the mercy of markets

  • The ECB’s Draghi drew a balanced picture of the economic situation.
  • He was slightly more positive than negative, supporting the Euro.
  • The next moves depend on Italy, stocks, and other events.

    • The European Central Bank left its policy unchanged as broadly expected. ECB President ECB described risks as broadly balanced. He maintained his slightly positive stance, keeping the Euro bid.
    Positive:

  • Momentum is slower, but growth continues.
  • Inflation is on course to reach its target and confidence is growing.
  • Wages are rising, and this is not temporary as these are bargained salary increases.
  • Did not discuss extending the QE program.

    • Negative:

  • Protectionism poses a risk. This is not news.
  • Market interest rates are rising so governments should be prepared – a hint for Italy.
  • Volatility in financial markets is a risk as well.
  • Monetary policy remains accommodative and will continue so.

    • On Italy, the Italian expressed confidence that a solution will be found. He dodged more politically sensitive questions that were thrown by reporters.
    The touch of optimism sent the EUR/USD to a high of 1.1432, but the pair retreated from there. The drop can be related to the strength of the US Dollar rather than anything Draghi said.
    All in all, Draghi passed the time without releasing too many meaningful soundbites. It seemed that he did not want to rock the boat too much. The next meeting, in December, consists of new forecasts and comes ahead of the end of the bond-buying scheme. Those expecting a dramatic Draghi show will have to wait for that final meeting of 2018.
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