Despite the swirling downside risks, the ECB announced an end to its large Quantitative Easing program at its December rates meeting yesterday. The programme, which has been in place since January 2015, has seen the bank pumping roughly 2.5 trillion Euros into the Eurozone.
Weak Momentum Acknowledged
Alongside the announcement, the statement was relatively unchanged from last time around. The ECB continues to see rates staying on hold until at least after summer 2019, and although it acknowledges weakened momentum in the economy, the governing council maintains that the “underlying strength of demand” means “the convergence of inflation to our aim will proceed.”
While the tone of the statement was broadly positive, Draghi did note in comments following the decision that risks to the eurozone economy are starting to tilt to the downside. This view was clearly reflected in the downgraded outlooks for both growth and inflation over the coming year.
Reinvestments To Continue For An “Extended Period”
Regarding reinvestments, the bank said that these would continue for an “extended period” of time past the first-rate hike and adjustments to the new capital key will take place gradually in order to “safeguard orderly market conditions.”
In all, the meeting was rather a non-event. The announcement of an end to QE was widely signaled, but many suspect the decision was made more for technical reasons rather than full confidence in the underlying economy, and with Draghi acknowledging that risks are tilting to the downside, it is safe to assume the bank is likely more worried than it let on at this stage.
The sell-off in EURUSD on the back of yesterday’s ECB meeting has seen price breaking down below the local contracting triangle pattern. The current 2018 low of 1.1214 is now the next key support zone, and below there, price has room to move down to 1.0912 before we see further structural support.