The ECB did leave official rates unchanged as expected, but reacted quicker and more decisively to the weaker growth outlook than anticipated, with the new guidance pushing out the time frame for a possible rate hike to next year.
At the same time, there was also an announcement of another round of cheap funding (TLTROs), to add support to the banking system, which is now facing a longer period with negative interest rates than previously expected.
Comments from ECB officials since the last meeting suggested that not everyone was convinced that there is an immediate need to commit to additional funding, especially as the latest data showed some glimmers of hope. Chief economist Praet meanwhile had already signalled last month that his assessment would be dovish leaning as he highlighted the risk that banks could restrict credit and thus worsen the slowdown and his judgement seems to have won out today.
Still, the fact that the maturity is just 2 years and that the loans won’t start before September, when the end of the last round of TLTRO loans starts to come into view and is expected to impact bank’s funding needs, will be disappointing for some in the market.
EURUSD dipped to better than 2-week lows of 1.1275 from near 1.1305 following the ECB’s announcement, breaking the S1 of the day at 1.1286. The cross remains below S1 ahead of Draghi’s press conference. Next support is set at 1.1267 and 1.1250 level. Immediate Resistance comes at 20-period SMA and PP level, at 1.1300.
GER30, which had underperformed through most of the European AM session rallied in the last 2 hourly sessions and is currently trading at 11,588 (PP from Pivot point analysis).
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Andria Pichidi
Market Analyst
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