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Euro Steady Following Draghi Rhetoric

David Becker
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Euro Steady Following Draghi Rhetoric

The Euro came off its highs following remarks from ECB president Mario Draghi focusing on the need to act prior to allowing deflation to take hold. Consumer confidence remains steady with economic expectations edging higher but personal income expectations declining. Average volume is low due to the UK and US holidays.

Currency traders reacted to comments from ECB Mario Draghi. “We are not resigned to allowing inflation to remain too low for too long,” “there is a risk that deflationary expectations take hold”. Draghi continue to make enough of an argument to ease rates in June that the market will likely take action in stride. The key for the ECB president is to make his bark bigger than his bite. Support on the currency pair is seen below near the 200-day moving average, presently situated at 1.3637. Resistance is seen near the 50-day moving average near 1.3789.

ECB must be particularly watchful on low inflation. Draghi said at the ECB forum in Portugal that “what we need to be particularly watchful for at the moment, is in my view, the potential for a negative spiral to take hold between low inflation, falling inflation expectations and credit, in particular in stressed countries”. Draghi also said the strong EUR and price adjustment in Eurozone countries add to low inflation.

German June GfK consumer confidence was steady at 8.5. The full breakdown, showed price expectations fell sharply to -15.3 from -9.1. Economic expectations improved, but personal income expectations declined, while readings for the willingness to buy and the willingness to save were slightly higher. A somewhat mixed result then, although the marked decline in price expectations will add to the arguments of the doves at the ECB, which have vowed to combat the dangers of a prolonged period of low inflation.

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