Outcome of yesterday’s ECB meeting

Mr Draghi addresses a news conference at the ECB headquarters in Frankfur. Photo: Ralph Orlowski, Reuters

Investors’ attention was redirected to the European Central Bank (ECB) meeting yesterday. They speculated on whether ECB president Mario Draghi will hint on tapering of the quantitative easing program (QE) in place, giving the strong economic data we are seeing out of the Europe.

The expectations of the market in relation to the ECB speech has created a level of uncertainty before the meeting (although this was expected and happens before most meetings).

There were some analysts who believed that the ECB will reduce its QE program (from the current €60bln asset purchase program per month) as soon as this autumn. This would be done in a gradual manner following the positive results in boosting the European economy so far this year.

However, during the meeting, Mr Draghi did not commit to a tapering of the QE program just yet. He confirmed that the program will remain in place till December of this year and extended if necessary.

Despite Mr Draghi not giving an indication of when tapering of the program will start, we continued to see a strengthening of the EURUSD which closed at $1.16,31 yesterday evening and is currently trading higher today at $1.16,67.

The continued strength in the EURUSD is a sign that the market is confident that the continued improvement in European economic data is enough for Mr Draghi to start tapering the QE program after 2017, even though we did not hear it from the horse’s mouth.


Traders had a cautious stance on the EURUSD currency prior the ECB meeting. The dollar benefitted before the meeting and recovered from a 10 month low.

However, the strength in the dollar was short lived following Draghi’s comments in relation to the current state and robustness of the euro zone. The euro currency escalated quickly above the EURUSD $1.16 level during the session.

The unanimous position taken by the ECB is to not interfere or affect in any way the positive gradual expansion the euro zone areas have been going through.


Although the economy in Europe is benefitting from the program initiated by the ECB, the statistics show that the inflation target of 2% will not be reached in 2018 and 2019 since it is expected to register a 1.3% and 1.6% respectively. Therefore if the market expectations are not met, a more bearish result would materialize a triple top formation, where the euro momentum will decline as already happened in the last 2 years.

The market expectations were not met by the ECB, since the decision following the meeting held in Frankfurt, was that the QE will remain unchanged and the current asset purchases will change only in size or time horizon if the need may be.

Draghi explained that the policy makers are still awaiting the inflation to pick up and reflect the economic recovery in Europe.

However, having said this, investors are confident that the stage is set for Draghi to start tapering of the QE program any time after December 2017 due to the strength we are seeing in economic data and earnings season so far.

Disclaimer: This article was issued by Andre Cauchi, Junior Investment Advisor at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.

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