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Five things we learned from the European Central Bank meeting


FSMNews

USA stocks on Thursday closed lower after the European Central Bank kept key interest rates steady but disappointed some by not announcing additional measures to boost Europe’s sluggish economy.

EUR/USD touched a peak of 1.1325, the strongest level last seen on August 26.

“While today’s inaction on policy is not too surprising, given their traditionally deliberate nature, we were expecting some language that would help prepare the market for easing later this year”, said Timothy Graf, head of macro strategy at State Street Global Markets EMEA.

The ECB reiterated that it would only expand its huge €1.74 trillion asset-purchase program if needed, until it witnesses a stable adjustment in the path of inflation coinciding with its inflation target.

But he added: “The economic recovery in the euro area is expected to be dampened by still-subdued foreign demand, partly related to the uncertainties following the United Kingdom referendum outcome”.

The pan-European STOXX 600 index was down 0.4 percent in early trading, adding to a pullback from the previous session after some investors expressed disappointment at the fact that the European Central Bank (ECB) had not discussed an extension of the timetable for its economic stimulus programme. In the next two meetings until year end the Governing Council may announce some limited changes of the APP parameters to ensure a smooth implantation of the program which are unlikely to push the euro lower.

The bank kept its key interest rates on hold and decided against extending the duration of its existing bond-buying stimulus program as it monitors the impact it is having on the economy.

Almost all analysts polled by Reuters expect rates to remain unchanged on Thursday and most predict that they have already bottomed out. Individuals who filed for unemployment assistance in the United States in the week prior dropped to a six-week trough.

As for Thursday’s calendar, the Labor Department will issue its report on weekly jobless claims at 8:30 a.m.

Even so, recent data have been weaker than estimates.

“But unless the Fed sends a message, it will be hard for them to make the markets price in a rate hike by the end of year”. Meanwhile, the dollar rose 0.2 percent to 102.73 yen. Spot gold was last at $1,335 an ounce, up 0.8 per cent this week, the biggest weekly gain in six weeks.

But in its statement on Thursday, the European Central Bank signaled it could past March 2017.

Treasury 30-year bonds fell by the most in five weeks as the ECB’s move was seen as crimping overseas demand for longer-dated USA debt, which offers some of the highest sovereign yields.

Bollinger bands in the daily chart are sharply indicating a rise, converging with the positive fundamentals mentioned above.

Indeed, fresh quarterly forecasts to be unveiled by Draghi, could show a slightly lower path for underlying inflation while recent research published by the European Central Bank suggested that long term inflation expectations are drifting lower, an indication of waning confidence in the ECB’s policies. As such, the price would remain limited near the current range now, thus keeping up near the present two-week peak.