Euro to US Dollar Barely Unchanged After ECB Press Conference

The euro to US dollar remained unchanged in Thursday after the ECB governing council decided to leave policy unchanged, in line with what most analysts had forecast.

The euro rose by a third of a cent following the release of the ECB governing council’s opening statements after the ECB July rate meeting, with an increase from 1.1010 to 1.1044 in the EUR/USD exchange rate on Thursday.

The exchange rate pushed higher as ECB president Mario Draghi said that financial markets had, “weathered the spike,” caused by Brexit, “with encouraging resilience. “

However, these gains were returned during the press confernece as Draghi appeared to side-step questions about whether there was any stimulus in the pipeline for September as most analysts expect.

When asked about how the ECB would respond to recent market volatility and Brexit-induced risk of a slow-down he merely repeated the mantra contained in the official statement that it was too early to say what impact Brexit had had and that:

“Over the coming months when we have more information including new staff projections,” we will decide.

Adding that, “if warranted to act the governing council will use all the instruments available within its mandate.”

Neverthless, his tone was overall more upbeat than expected, and he was especially positive about how well Eurozone banks had weathered the recent volatility saying that due to the policies of the ECB, and the reform and recapitalization of euro-zone banks, “market stresses were contained.”

He also said that despite the hit from Brexit the problem with Eurozone banks was more one of, “weak profitability not solvency.”

Overall Upbeat

The ECB's response was more in line with the more favourable scenarios modelled by analysts prior to the meeting as the majority had expected a more pessimistic statement.  

Draghi did not dismiss the possibility of using further stimulus to help support the region should the impact of Brexit require it.

The ECB highlighted how bank lending was continuing to improve in the region, with loans to non-financial institutions rising by 1.4% in May compared to 1.2% in April.

Loans to households rose by 1.6% in May -  the same as April.  

As was expected, the European Central Bank (ECB) did nothing to change its policy on Thursday.

It kept the main refi, marginal lending and deposit rates the same at 0.0%, 0.25% and -0.4% as analysts had predicted.  

Regarding non-standard monetary measures it kept monthly asset purchases the same at 80bn and the end date for the programme to March 2017.

Technical Outlook

Looking at the charts we also see that a bias leans towards more downside after the pair broke down below the lower channel line of a long-term rising channel, generating a downside target at 1.0750, calculated by extrapolating the height of the channel down from the break.

A strong support line at 1.0861 provided by the ‘S1 Monthly Pivot’ - which is a level used by traders to anticipate increased demand – provides a closer interim target for a move lower.

Additional confirmation of more downside might come from a break below the 1.0909 Brexit spike lows.