Fundamental Analysis: Euro’s Losses after the ECB’s Meeting

The euro has declined this afternoon so far against most major currencies in an initial reaction to the comments from the ECB’s press conference. While there were few surprises from the bank’s president Mario Draghi, the tone was overall fairly negative.

Euro-dollar pulled back from fortnight highs to trade at around $1.124 at the time of writing. Meanwhile the common currency also lost ground to ¥125 and below. EURGBP declined below the important level of £0.86.

Little surprise that downside risks remain

The decision to leave rates on hold was universally expected, causing little reaction from the euro in most of its pairs. The content of Dr Draghi’s comments at the subsequent press conference was also unsurprising, but the euro still declined significantly against most other currencies.

Among the major negatives for the eurozone’s economy are high risks to growth around the world and threats of protectionism. Dr Draghi refused to comment further on the reports of new planned tariffs on European exports to the USA.

The ECB’s president also commented on weak data recently, especially manufacturing, as widely predicted. He highlighted this as the result of a slowdown in external demand combined with country- and sector-specific factors. Conversely, Dr Draghi said that this will be less important to the ECB’s outlook as time passes and wages and employment continue to rise.

Despite Dr Draghi hailing a ‘gradual rise in inflationary pressures’, overall the comments this afternoon were negative for the euro.

German inflation in traders’ sights tomorrow

The most important data from the EU in the rest of the week is tomorrow’s German inflation. The final figures for monthly and annual inflation come at 06:00 GMT tomorrow, with a slight decline in view for the annual figure to 1.3%. If the consensus is correct here, we might expect a negative reaction by the euro given Dr Draghi’s comments today.

Traders are also likely to watch figures for eurozone industrial production on Friday morning. The forecast is for declines in both the monthly and annual figures at the announcement (09.00 GMT on Friday).

More small losses possible for the euro

Fundamentals as of now would suggest that the euro might continue its downward movement against most currencies. However, this would probably be a more gradual development over days. For most symbols, the technical picture supports tis, with EUR overbought on higher timeframes this week.

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