Summary:

  • ECB members agreed a shift in forward guidance was premature
  • Some of them preferred to drop the easing bias on QE
  • Euro hovers close to a 1.23 handle, it could be still prone to move lower

The account of the January’s meeting did not bring any new clues with regard to monetary policy or the latest strength of the shared currency. As a result, the euro made just a brief jump higher erasing it subsequently. The takeaways are as follows:

  • patience, persistence needed amid still weak inflation
  • some members wanted to drop easing bias on QE
  • there was a broad agreement that policy stance was ’broadly appropriate’
  • ECB could revisit its guidance early 2018 as a part of its regular review
  • they agreed it was premature to adjust forward guidance

As you can see even as the Governing Council expressed its readiness to adjust communication going forward it agreed at the same time that an improvement in economic activity was too little to justify such a change in January. Nevertheless, one may suspect that along with a further recovery in growth (despite somewhat disappointing PMIs for February) the ECB could be eager to tweak its guidance in the upcoming months. This is especially true when we take into account that a base effect acting adversely on inflation is anticipated to disappear since spring while rising oil prices should support headline inflation as well. Overall, the minutes seem to be neutral for the current stance of the ECB offering neither a boost nor a blow to the common currency. Thus, one may expect that the ongoing short-lived pullback will be continuing until US dollar bulls lose momentum again.

link do file download linkThe euro is likely to keep on stumbling in the near-term fuelled mainly by USD strength. Technically, the pair failed to break a crucial zone at around 1.2350 and therefore an extended correction toward 1.2150 or slightly below seems to be justified. Source: xStation5