ECB Bulletin and EURUSD Price, Chart and Analysis:
- Realise and projected inflation persistently below ECB’s aim.
- Further EURUSD upside likely limited unless the US dollar breaks lower.
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The latest ECB Economic Bulletin underscores the current weakness in the manufacturing sector and says that the drop in the global services output Purchasing Managers’ Index in June “raises the risk of a more broad-based deterioration in the global growth outlook.” The release also reiterated the need for a “highly accommodative stance of monetary policy for a prolonged period of time, as inflation rates, both realised and projected, have been persistently below levels that are in line with its aim.” Financial markets are now fully pricing-in a 10 basis point cut in the deposit rate to -0.50% from a current -0.40% at the September ECB meeting with growing expectations that the ECB will also announce details of a new round of quantitative easing. Eurozone bond markets continue to rally, pushing yields further into negative territory, ahead of this announcement and will likely extend the move in the coming months, weakening the single currency.
EURUSD continues to trade either side of 1.1200 and is likely to remain stuck around these levels as currency wars continue. Appreciation in the Euro is likely to be muted and EURUSD traders will be looking ahead to the next ECB rate decision (September 12) and the FOMC meeting (September 18). The ECB is expected to cut by 10bps while the Fed is expected to cut by 25 basis points with a 50 basis point cut seen as unlikely but still a possibility. The interest rate differential between the two central banks after these meetings will help drive, or reinforce, the next move in EURUSD. Until then EURUSD will likely trade sideways without any conviction.
EURUSD Daily Price Chart (December 2018 – August 8, 2019)
IG Client Sentiment data shows traders are 52.8% net-long EURUSD, a bearish contrarian bias. However, the number of traders net-long is 11.3% lower than yesterday and 41.5% lower from last week, while the number of traders net-short is 2.2% higher than yesterday and 50.4% higher from last week. See how these recent positional changes move EURUSD trading sentiment.