FX.co ★ ECB meeting: predictably without surprises

The European currency slightly declined today following the ECB meeting or to be more precise, after the press conference of the Central Bank Chairman Mario Draghi. It is worth noting that the market did not expect any "hawkish" maneuvers or comments from the regulator initially, hence, the decline in EUR/USD is restrained. However, the negative concerns today still prevailed, therefore the price only moved away from daily highs and "formally" dropped to 1.1331. At this level, the bearish impulse was exhausted followed by a corrective rebound.

If we ignore the impulse of price jumps, traders did not give much importance to the outcome of the December ECB meeting, partly from the fact that many of the theses were voiced earlier and that there were also optimistic estimates in addition to pessimistic remarks. However, first things first.

First of all, the European regulator announced that it is completing a four-year bond redemption program and the total amount of which amounted to 2.6 trillion euros. At the same time, the Central Bank announced that it will continue to reinvest the proceeds from bonds with upcoming maturities that were bought back as part of the asset buying program - "as long as it is necessary to maintain favorable liquidity conditions".

As for the fate of the interest rate, there are also no surprises. According to the baseline scenario, the key rates will remain at current values at least until the autumn of next year - and in any case, until inflation rises to the two percent level (literally the wording sounds like " admissible below, but close to two percent level "). All of these became known immediately after the meeting, based on the text of the accompanying statement. Traders ignored all the above theses, as there was nothing new in them.

But Mario Draghi somewhat "stirred up" the market. First, he said that the ECB had reduced its forecast for eurozone GDP growth to 1.7% (from 1.8%) for the following year. This decision Draghi justified the increased risks of protectionism and geopolitical conflicts. He also expressed concern about the dynamics of emerging economies and the increased volatility in stock markets. In other words, the head of the ECB made it clear that the trade war between the United States and China dpasses without a trace - neitherfor the world economy, nor for the European one. As for the internal situation, he had to admit that the latest key data on the growth of the eurozone economy turned out to be weaker than forecasts, primarily due to a decrease in external demand (in particular, the percentage ratio of companies that reported an increase in their profits).

Draghi also appreciated the rise in inflation in the eurozone. According to the regulator, the figure will rise to 1.8% compared to the slightly lower September estimate of 1.7%. However, the inflationary growth should slow down to 1.6% in 2019 with the previous forecast of 1.7%. As the head of the ECB himself noted, inflation forecasts remained almost unchanged, despite their minor revision.

In addition to cautious comments, the head of the ECB also voiced very optimistic theses. For example, he said that inflation indicators continue to move towards the target level, despite the end of the impulse of economic growth in Europe. He also noted an increase in the volume of investments, primarily in the housing sector, the growth of trade indicators and the level of wages will in turn increase the level of consumer spending.

Summing up, Mario Draghi said that the risks to the growth of the eurozone economy are still balanced, but show signs of deterioration. At the same time, the head of the ECB avoided harsh language- his theses were well-considered and veiled. Therefore, it is not surprising that the market reacted to its rhetoric accordingly, relatively calmly and without panic.

In my opinion, this reaction looks absolutely reasonable. By and large, the European regulator retained the status quo and did not make any harsh statements and (all the more) decisions. In the run-up to this meeting, there were rumors in the market that Draghi could move the benchmark rate hike for 2020, given the recent macroeconomic indicators. In this case, the loss of the euro would be much more significant. Since this did not happen, in the near future the market will switch to other fundamental factors that will determine the dynamics of the EUR/USD pair such as the Brexit, US-China relations, the December Fed meeting, and Trump's impeachment prospects.

In other words, today's meeting of the ECB absolutely did not change anything in the market: the pair bears found a reason to reduce the price by a couple of dozen points while the bulls make purchases on more profitable offers.