Draghi Tells European Parliament ECB Ready To Act

But states further support is not necessary at this stage

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Speaking at European Parliament yesterday, Mario Draghi, the head of the ECB, told MEPs that although the eurozone is facing growing downside risks, the central bank does not feel that further monetary support is required.

Draghi’s speech was closely watched yesterday following the recent ECB meeting which saw Draghi adopting a stance which was more dovish than the market was expecting.

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In the press conference following the rate decision, Draghi told reporters that external risks had grown larger and that the ECB stands ready to use any and all instruments to keep inflation on course for target.

ECB Can Restart Asset Purchases If Necessary

During his comments yesterday, Draghi reaffirmed this message. Answering a question about whether the ECB could restart net-asset purchases, Draghi responded saying:

“If things go very wrong, we can still resume other instruments in our toolbox. There is nothing objecting to that possibility… The only point is under what contingency are we going to do this. And at this point in time, we don’t see such contingency as likely to materialize, certainly this year.”

Chinese Stimulus To Help Eurozone

Interestingly, the ECB chief then went on to describe how Chinese stimulus can help buffer the eurozone economy. Draghi told MEPs that he was “confident” in the Chinese government’s policy response, following growth in China falling to its lowest level since the 90s.

Draghi told MEPs of the importance of Chinese economic performance to eurozone manufacturing, specifically for German exporters. Following a 6.6% annual growth reading in China last year, Beijing has boosted its fiscal and monetary stimulus in a bid to ward off a further slowdown this year.

These comments are particularly noteworthy given the slew of weaker data from Germany recently. With growth hitting five-year lows on weakened exports and the leading Ifo index recently printing a fifth consecutive monthly decline, the negative impact from these growing “downside risks” has been brought into sharp focus.

Draghi also used the event to highlight the negative impact seen from the “protracted” Brexit negotiations which have fuelled business anxiety. Draghi warned that it is incredibly difficult to forecast how individual member states would be affected by a “hard” Brexit.

Plenty of Data To Watch This Week

The market will now be closely watching eurozone data over the rest of the week which is likely to add further confirmation of the presence of these growing downside risks. Tomorrow we have French growth data along with German Inflation, followed by German unemployment, eurozone unemployment, Italian GDP on Thursday and finally eurozone CPI on Friday.

Technical Perspective

eurgbp currency pair

The heavy sell-off in EURGBP from December 2018 has seen a pause in momentum over recent days, with price having bounced at the .8622 April 2018 low. The rally, though, is weak and is currently struggling to pass resistance at the retest of the broken bullish trend line from 2017 lows and the November 2018 closing low of .8694. While price remains trapped here, further downside is likely to materialize, bringing a test of deeper support at the .8532 level into focus.

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