The European Central Bank closed its 2-day meeting yesterday. The meeting ended with several decisions. In particular, the central bank decided to leave the interest rates unchanged. With that said, the central bankers want to take into account more economic figures to evaluate the effect produced on the economy by the previous measures prior to make further changes to their monetary policy, especially those made in August and September to stimulate inflation. Indeed, the inflation pressure in the Eurozone is very weak, which hinders economic growth in the region. The rate of inflation is well below the 2% target set by the ECB.
The key interest rate at with the ECB lends to other European banks is currently left unchanged at the historical low of 0,05%. At the same time, the overnight rate is still negative at -0,2%. Meanwhile, Mario Draghi underlined that the interest rates already found the bottom.
During the press conference following the 2-day meeting, Mario Draghi gave everyone to understand that the ECB is going to start purchasing bank credits or asset-backed securities. The program will take place from October through December. At the same time, he hinted that the ECB is devoted to the idea of using extra unconventional instruments if the rate of inflation is still well below the target. With that said, the probability of another round of quantitative easing is still high.
Still, Mario Draghi is sure that the steps taken by the ECB will help the economy and trigger an inflation hike up to the 2% target. He also said that the economic recovery will stay moderate in 2015 amid increasing inflation pressures despite the fact that multiple surveys indicate economic weakness. At the same time, the ECB expect the projected pace of economic recovery to slow down a bit.
The common currency managed to gain a little bit more value against the US Dollar after the markets realized they were not going to get more details on the asset purchase program. Still, despite the current bullish reaction, the common currency is likely to continue its way down to new lows against its American counterpart.
Meanwhile, the trading experts from Masterforex-V Academy (who always help Market Leader and its audience define the near-term prospects of EURUSD and other major currency pairs) assume that the bullish reaction started by the common European currency is probably over.
Today, on October 3rd, the EURUSD exchange rate (as shown by the H1 chart below) resumed the move down. At this point, it seems like the downtrend in the market of EURUSD has become a new norm.
They say, that the mid-term bias still belong to the bears, which means they are likely to keep on dominating the market in the near future, especially if backed by corresponding fundamentals.
If today’s Non-Farm Payrolls comes out positive, the bearish trend is definitely going to continue its way down to new lows. Technically, the market’s intention to resume the big-scale downswing will be confirmed if the price breaks and consolidates below MA 55 and MF pivot 1,2590. A break below the local low of 1.2570 (set on September 30th) will give way to 1,2506.
Alternatively, if the payrolls are weak, the bulls will get a chance to take over the initiative and dominate the market for a certain period. Technically, if the price breaks and stays above 1.2689, we may see a further move up to 1.2764 and higher.
