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.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.