ECB Sets Sights on March Stimulus

January 21, 2016 Share Print 0

The euro has come under heavy selling pressure and European stocks given a timely boost on Thursday after ECB President Mario Draghi dropped a very clear and deliberate hint that further monetary stimulus is likely at the next meeting in March.

It was always likely that Draghi’s message was going to be dovish today given the turmoil in the markets so far this year and near 30% decline in oil prices (40% decline since the cut-off date prior to the last ECB meeting). That said, I don’t think people anticipated such a blatant and clear warning of a monetary policy response at the next meeting, when new macro-economic projections will assist policy makers in determining the appropriate response.

Draghi’s comments today suggest bold action is going to be necessary in order to overcome the new deflationary pressures and downside risks to the euro area. It’s worth remembering though that ahead of the December meeting, people were convinced that the ECB was going to bring the bazooka only to find out it instead came armed with a water pistol. While I doubt they’ll make the same mistake again, we should perhaps be careful not to expect too much from the central bank again. There was and remains some very influential and hawkish members within the central bank, something Draghi appears to sometimes forget when placed in front of the cameras.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

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Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA

Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.