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Euro jumps on lack of action

Anyone who expected that the European Central Bank would act to avert any deflation concerns, or indeed the liquidity issues in the monetary transmission system, was left disappointed today. 

Rates remain at record lows and, while Mario Draghi may have indicated that the ECB still had many tools with which to address any shocks as they arose, the need to act is clearly not yet here.

He said that a survey of conditions, including the better CPI and growth data this year, has indicated that there are no major changes needed.

The ECB has forecast that inflation will return to mandated levels, yet earlier this week admitted that the longer we see CPI remain below the 2% target, the harder it will be to accomplish.

The euro has jumped higher on the lack of action, attacking a key long-term resistance zone at 1.3830 against the dollar, as the lack of any move to inject liquidity into the market via the non-sterilisation of bond purchases – along with a fairly hawkish statement – has underpinned the single currency, and sent the dollar index to below the 80 metric.

For now, should the market close above 1.3840 on a daily basis, the bias is on euro upside and for an attack of $1.40.

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