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Will ECB Minutes Spook Traders into Selling After Revealing Why It Acted to Aggressively?

By:
James Hyerczyk
Published: Apr 4, 2019, 08:14 UTC

Traders will also be looking for reasons for the ECB’s urgency to implement the new policy changes. Perhaps they had spotted holes the economy that investors couldn’t account for. This may be revealed in the meeting and if they are Euro traders may be spooked enough to sell the currency through the March 7 bottom at 1.1177.

EUR/USD

The Euro is trading nearly flat early Thursday after posting a two-sided trade earlier in the session in reaction to the largest drop in Germany factory orders in over 2 years and ahead of the release of the European Central Bank (ECB) meeting minutes from March 6-7. The dovish tone of that meeting may be wearing on Euro traders.

While the dramatic drop in German factory orders may be setting the early tone, the minutes of the March ECB policy meeting may contribute added pressure when the results are released at 11:30 GMT.

If you recall, the central bank was quite dovish while emphasizing four key points. All of the major changes were widely expected, but investors didn’t expect them to be announced at one time. Many had thought the changes to stimulate the economy would be introduced slowly over subsequent months instead of in one fell swoop.

After the meeting, ECB President Mario Draghi said the Governing Council took the following decisions in the pursuit of its price stability objective.

Firstly, the ECB decided to keep its benchmark interest rates unchanged. “We now expect them to remain at their present levels at least through the end of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2 percent over the medium term.”

Second, ECB policymakers said, “We intend to continue re-investing, in full, the principal payments from maturing securities purchased under the asset-purchase program for an extended period of time past the date when we start raising the key ECB interest rates, and in any case for as long as necessary to maintain favorable liquidity conditions and an ample degree of monetary accommodation.”

Third, the ECB “decided to launch a new series of quarterly targeted longer-term refinancing operations (TLTRO-III), starting in September 2019 and ending in March 2021, each with a maturity of two years. These new operations will help to preserve favorable bank lending conditions and the smooth transmission of monetary policy.”

Finally, the ECB statement said, “We will continue conducting our lending operations as fixed-rate tender procedures with full allotment for as long as necessary and at least until the end of the reserve maintenance period starting in March 2021.”

In his post-monetary policy announcement press conference, Draghi said there was some divided discussion on the topic of “ECB tiering” or the splitting up of the deposit rate to allow some deposits at zero or positive rates. Some policymakers favored getting rid of negative rates, while others were willing to extend the unchanged policy guidance beyond the current end of 2019.

Today’s minutes could provide further details of the discussions which could make “tiering” a hot topic later in the year at the June or September meetings.

Traders will also be looking for reasons for the ECB’s urgency to implement the new policy changes. Perhaps they had spotted holes the economy that investors couldn’t account for. This may be revealed in the meeting and if they are Euro traders may be spooked enough to sell the currency through the March 7 bottom at 1.1177.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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