Last month, ECB President Mario Draghi took unprecedented step when he made the deposit rate negative for the first time in an effort to fight off the deflationary fears. EUR/USD jumped up more than 150 pips to around 1.37000 level and then started falling. It has been falling since then. But analysts had voiced concerns over the effectiveness and efficacy of ECB Monetary Policy. It seems that the analysts had been right. Deflationary pressures are on the rise again. Always keep in mind there is always a lag of a few weeks to a few months before the full effects of a monetary policy change becomes visible. As a EUR/USD trader, we need to constantly keep an eye on ECB.
The European Central Bank (ECB) sees inflation as a key metric in gauging the state of the euro zone, and announced a slew of measures back in June to try to spur on the region’s flagging economy. Many analysts fear deflation could lead to a downward spiral, with consumers holding off on purchases in the expectation that prices could fall further. Others see deflation as a natural rebalancing within the region, believing that consumer prices need to slide to counterbalance an overly-strong euro. Draghi may be forced to act soon again. He can no longer make the argument that we need time for the measures already taken to fully take effect. So keep an eye. In the next ECB Press Conference, EUR/USD can move big time once again.
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