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EUR: Facing the Draghi effect? - Rabobank

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Jan 21, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Delhi) – Jane Foley, Research Analyst at Rabobank, suggests that since the ink is barely dry on last month’s ECB policy changes, there is no expectation in the market of any additional stimulus from today’s council meeting.

    Key Quotes

    “However, there will still be a great deal of attention paid to the 13:30 GMT press conference as investors attempt to second guess the intentions of the ECB.

    In December ECB President Draghi appeared to lose a little of his magic. Between the middle of 2014 and early last year Draghi had presided over a huge weakening in the value of the EUR, much of which was obtained with little more than words. Since March 2015, however, the EUR has proven to be reluctant to give up ground. Despite the fact that the direction of ECB and Federal Reserve policy diverged last month, EUR/USD made net gains.

    It is unlikely that safe haven demand is the only reason behind the recent buoyancy of EUR/USD.

    The fact that the ECB were less dovish at last month’s Council meeting than the market had expected as also pared back the downside potential for EUR/USD.

    Last month’s policy decision from the ECB was not unanimous. The minutes of the meeting have highlighted concerns within the Council about the side-effects of extraordinary policy measures. This suggests that if further action is deemed necessary that another reduction in the discount rate may be preferable to a step up in QE.

    On balance, we see risk of a 10 bps discount rate cut in March. Although we see scope for EUR/USD to edge lower this year, we expect the pace and scale of any downside to be moderate. We forecast EUR/USD at 1.06 on a 6 mth view.”
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