EURO's "whatever it takes" limbo (20.11.2015)
"Whatever it takes" is turning out to be the "labor market slack" to the Europeans as it is for the Americans as the main focus in Draghi's testimonies as those of Janet Yellen. But while the focus of the Americans seems is determined and tightening around the rate hike, the Eruo leaders still are tumbling around the "large" round of instruments for handling the debt crisis (presumably solved), boosting the economy for their inflation target, and holding the euro low with LTROs or different market manipulation. Too many tasks to handle with no current and determined action from the ECB. As FED is making their bets now for the December hike, Draghi is still in "whatever it takes" limbo. Seems that more or less Mario Draghi is simply buying time. Shortly after the official ECB meeting, he released a speech, titled "Monetary Policy: Past, Present and Future" sending the euro reeling for the time being. Highlights:
- Draghi says ECB will do what it must to raise inflation quickly
- Draghi: economy needs more aid if recovery not self-sustaining
- Draghi: balance of risks of price stability skewed to downside
- "If we decide that the current trajectory of our policy is not sufficient enough to achieve that objective, we will do what we must to raise inflation quickly as possible. That is what our price stability mandate requires of us" - as stated in his speech in Frankfurt.
- "In making our assessment of the risks to price stability, we will not ignore the fact that inflation has already been low for some time"
- "If we conclude that the balance of risks to our medium - term price stability objective is skewed to the downside, we will act by using all the instruments available within our mandate"
- "Low core inflation is not something we can be relaxed about, as it has in the past been a good forecaster for where inflation will stabilize in the medium-term"
- "The question we face now is not therefore whether we have the tools available to provide appropriate degree of monetary stimulus. We have proven that. The question is on of calibration"
He also stated that "growth momentum remains weak and inflation remains well bellow our objective of below but close to 2%" and that "the Governing Council is committed - unanimously - to using both unconventional and conventional instruments to deal effectively with the risks of a too prolonged period of low inflation"
And in conclusion: "So let me reiterate what I said here last year: if we decide that the current trajectory of our policy is not sufficient to achieve that objective, we will do what we must to raise inflation as quickly as possible. That is what our price stability mandate requires of us". And the Euro lost nearly 100 pips on Friday...
As for the euro - indeed it is going to continue its downtrend after the false hype about active measures from the ECB. Price retracted from the top trend line and it is heading towards 1.05666 for sure where it will test a deep buy zone and maybe it will make a correction before an eventual breakout towards 1.04662.
Sell on the tops, trade with the trend.