EUR/USD Outlook Hinges On Updated ECB Forecast, QE Program Deadline

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Trading the News: European Central Bank (ECB) Interest Rate Decision

The initial reaction to the European Central Bank (ECB) interest rate decision may be limited as President Mario Draghi and Co. preserve the zero-interest rate policy (ZIRP), but the fresh updates coming out of the central bank may drag on EUR/USD if the Governing Council merely attempts to buy more time.

The ECB may largely endorse a wait-and-see approach as ‘measures of underlying inflation remain low and have yet to show convincing signs of a pick-up,’ and the Euro may face a bearish reaction should the central bank keep the door open to extend the quantitative easing (QE) program beyond the December deadline. On the other hand, the Governing Council may prepare European households and businesses for a less-accommodative stance as officials see ‘reflationary forces, which referred to the recovery of inflation from levels below its long-term trend, had replaced risks of deflation,’ and the shift in EUR/USD behavior may continue to unfold throughout the remainder of the year if the ECB shows a greater willingness to gradually move away from its easing-cycle.

Impact that the ECB rate decision has had on EUR/USD during the previous meeting

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

JUL

2017

07/20/2017 11:45:00 GMT

0.00%

0.00%

+66

+134

July 2017 European Central Bank (ECB) Interest Rate Decision

EUR/USD 15-Minute

The European Central Bank (ECB) stuck to the zero-interest rate policy (ZIRP) in July, but went onto say the Governing Council will decide the fate of the quantitative easing (QE) program in autumn as the non-standard measure is scheduled to end in December. The fresh remarks suggest President Mario Draghi and Co. will gradually move away from the easing-cycle as ‘the risks surrounding the euro area growth outlook are broadly balanced,’ and the ECB may continue to soften its dovish tone over the coming months as officials argue ‘reflation has replaced deflation.’ The Euro rallied following the ECB meeting, with EUR/USD clearing the 1.1500 handle to end the day at 1.1630.