ECB Draghi’s Comments Deflated EUR

Then he uttered the magic words, “comfortable with acting next time” and the euro has been on a one-way ticket down. It’s now sitting at nearly three-month lows against the dollar and the yen.
With those words, Draghi raised expectations of easing policy in June.

“The ECB has now officially joined the increasing list of central banks directly or indirectly targeting their exchange rate since the global financial crisis,” wrote Bank of America Merrill Lynch strategists led by Athanasios Vamvakidis after the meeting.

“The ECB’s references against euro strengthening—rather than calling directly for a weaker currency—to address deflation risks do not cross the line of G20 commitments against beggar-thy-neighbor policies in our view, but certainly are not fully consistent with market-driven exchange rates,” they added.

In other words, the ECB isn’t breaking any international taboos of directly intervening in the currency market, but indirectly, it’s talking the euro down.

Talk is one thing, action is another. Strategists say for the euro to continue weakening, Draghi must pull the trigger. The question is what will he do?

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza