EUR/USD after the ECB meeting

The ECB meeting is already in the history. In general, it can be summed up that it did not produce anything more serious like news. The euro wondered where it would go against the dollar, but eventually chose to go down, falling below 1.1650. Earlier in the day, the single currency traded at levels of about 1.1700 after the good development from Trump and Juncker meeting.
Overall, the ECB decided to keep its base rate unchanged. Draghi also confirmed that 30 billion stimulus would gradually be reduced to reach zero by December 2018.
At the press conference, Draghi once again confirmed the plans of the financial institution to maintain the current interest rate by the summer of next year to ensure continued steady convergence of inflation over the medium term to levels near two percent.
Of course, the future decisions of ECB will continue to be predetermined by the outgoing macrodata. This was accepted by market participants as a signal that if the trade war resulted in a more serious slowdown in economic growth and inflation, the central bank could be much less aggressive about its interest rates.
In June, the ECB announced its plans to end its massive bond purchase program in December, hinting that interest rates are likely to remain at the current low levels until at least the summer of 2019. The ECB reaffirmed that any possible change to the current plan would depend on the current economic data.
According to technical analysts, the euro may try to retest the psychological limit of 1.1500 against the dollar, and the test will determine the further movement of the currency pair. Decline below this limit can be seen as a very negative signal and lead to further losses for the single currency towards 1.13-1.12. Otherwise, a failed breakthrough, as well as returning at trading levels above 1.1700, will require conditions to boost the euro's appreciation.

The ECB meeting is approaching and change may be significant

The ECB is expected to take test trials on the outcome of its monetary policy at its next week's meeting, which may end with publicly announcing the plans when we will see an exit from this policy.
It is very likely that ECB President Mario Draghi will use the June 14th summit in Latvia as an opportunity to discuss the end of the buy-back program, according to market observers.
Currently, bond purchases are scheduled to take place at least until September. However, there is no more clarity about the time of their end, which brings serious uncertainty among market participants.
And many market observers see a good time at the ECB meeting to "prepare the ground". Dearly, it is possible to use the press conference to signal that a decision on the end of the stimulus could come at the July meeting of the bank.
Even if the topic is concerned, there would be serious progress on the way out of the incentives, comment market observers.
The June decision may also be accompanied by new economic forecasts on the euro area by the ECB, which also give some signals to investors. If the forecasts are good, investors may decide that we will see a recent exit from the incentives.

The ECB is moving towards the end of its quantitative easing. What follows?

The European Central Bank is slowly moving towards completing its four-year program of quantitative easing. And that may be the easier side compared to what is ahead, according to market observers.
And while the members of the ECB feel comfortable about the end of the bond repurchase at the end of the year, it could be much more complicated in 2019.
It is then expected that the ECB would pull out of the bond markets for the first time as a source of liquidity. In addition, we may witness one or two interest rises, in an environment where Mario Draghi paves the way for his successor.

Draghi pushed the dollar up, dragged the gold down

Gold has fallen, and the dollar has risen since its three-week minimum against the euro after ECB chief Mario Draghi signaled that any normalization of monetary policy would be very "smooth" and "gradual".
The single currency recorded a significant decline over all major currencies, following Draggy's comments.
Draghi also said that inflation is still weak, which is likely to predict a slight change in ECB policy.
The spot price of gold fell 0.3 percent to $ 1 321.09 per ounce. It reached a one-week high of $ 1,340.42 an ounce on Wednesday before closing 0.6% down. Gold futures fell 0.4 percent to $ 1,321.80.
According to Georgette Boyle, an analyst at ABN Amro, the dollar will remain a key driver of the gold price. The only reason the gold price rose to $ 1,340 per ounce was the weakness of the US currency last week, the analyst said.

Inflation in the eurozone slows down

Inflation in the eurozone slowed down in the first month of the year, which reduced the expectations of a large part of the market for a more recent normalization of interest rate policy by the ECB.
The consumer price index rose 1.3% in the first month of the year, down from 1.4% a month earlier. This was the lowest level of inflation since July 2017, according to preliminary data from the euro area.
Inflation in the eurozone continues to be at levels below the target of the European Central Bank of 2%, which could be a serious challenge to Draghi's plans for normalizing interest rates and ending incentives soon.
Despite data, the euro continued to trade against the dollar at extremely high levels above 1.2450.
In fact, the euro is not strong, but the dollar is weak. Besides, shortly before the Fed's interest rate decision today. Analysts expect the reserve to keep interest rates unchanged, and their next increase to be left to the new Fed leader, Jerome Powell, who will replace Yellen next month.
A major role for low inflation in the eurozone for a month is energy prices. They rose in the first month of the year by 2.1%, following an increase of 2.9% in December.
A more robust rise of 1.9% was seen in food and tobacco products, which grew by more than 2% last month.

Euro's jumping too high

There are risks of excessive euro appreciation, not due to a solid foundation. European regulators are in no hurry to change their stimulus policy.
They are worried about the sudden movements of the euro that do not correspondent to economic grounds. According to market observers, however, the ECB aim at one thing - to put pressure on the euro to fall.
The ECB does not approve of the appreciation of the euro, which makes European goods relatively more expensive on international markets and reduces their competitiveness.
The attempts of ECB heads to put pressure on euro over the past year was meaningless, as the single currency continued to rise, and the market accepted the motto "speaking is cheap."
The ECB faces new uncertainties about inflation expectations and rising oil prices. At the same time, strong economic growth is threatened by the appreciation of the euro.
The euro appreciated by 1.9% against the dollar since the beginning of the year and traded near its highest levels in three years. It fell 0.2% yesterday to levels of 1.2230.

Draghi: Cryptocurrencies are not mature enough to be regulated

Apparently, the head of the ECB, Mario Draghi, has become bored, or he just wants to divert the market attention after commenting on the cryptocurrencies. All eyes are on Draghi, looking for potential signs of what the ECB's future monetary stimulus policy will be. Draghi, however, surprised everybody, by saying that cryptocurrencies, are not mature enough to be regulated. According to him, digital currencies need to be approached with particular attention in relation to the potential risks associated with them.
Until now, the different regulators have adopted a different approach to cryptocurrencies. It varies widely from their recognition from Japan, to the ICO ban in China, and the closure of the Crypto-Exchanges.
Last month, in a formal statement to the European Parliament on Economic and Monetary Affairs, Draghi said the ECB had no competence to regulate cryptocurrencies.

Draghi: Be careful with the expensive euro

The head of the ECB, Mario Draghi, once again expressed his fears of the appreciation of the euro. Speaking on Monday, Draghi said the recent volatility in the euro exchange rate is a serious source of uncertainty and requires serious monitoring.
The euro rose from 1.05 at the beginning of the year, to about 1.19 dollars, at the moment. Further growth of the single currency against the dollar and other major currencies will seriously burden the "old continent".
Draghi told the European Parliament that the economic situation of the eurozone is stable and broad-based.
Further clarification on the ECB's future policy on incentives and record low interest rates is expected to be given at the next meeting of the Bank's Monetary Policy Committee on 26 October.
It is then that investors expect specific deadlines to end the program of incentives and the gradual normalization of interest rates in the euro area.
At the moment, the ECB buys back bonds worth 60 billion euros per month.
Speculation on ending incentives and normalizing interest rates was largely the basis for the appreciation of the single currency.
However, after the strong rise in the euro, the single currency seems to be in a correction mode, and it is now back below the threshold of 1.1900 on the first day of this week.
Draghi's comments helped further depreciation of the euro, which dropped to about $1.1850.

The ECB is still worried about low inflation

The European Central Bank is still worried about the low level of inflation in the eurozone despite the substantial improvement in its condition.
From the protocols of the bank meeting held on July 20, it is clear that, according to ECB officials, market participants are too aggressive in their expectations of the recent end of the stimulus.
This was affected the value of the euro, which in the last few weeks increased significantly compared to other major currencies.
Although inflation in the eurozone is growing at a good pace, with the latter accounting for 1.3%, this is still below the 2% target of the ECB, a level that is considered healthy for the economy.

B. Gross: Danger of recession if banks are aggressive in their policies

Highly leveraged world economies, including the US, are at risk of recession, if central banks around the globe are approaching too aggressively in terms of their interest rate policy, believes the "bond king" Bill Gross.
In his latest letter to clients, Gross who is managing $2.1 billion in the Janus Henderson Global Unconstrained Bond Fund, said that the Fed and other central banks around the world should not rely on historical interest rates in a world of "extraordinary monetary policy."
"The attachment of Yellen, Bernanke, Draghi and Kuroda, as well as the other central bankers to the standard economic models, have destroyed the capitalism we have known. There is a danger of the occurrence of unknown consequences in the coming years," Gross said in his letter.
Gross refers to Yellen's predecessor Ben Bernanke, ECB chief Mario Draghi and the Japanese central bank Haruhiko Kouroda to make a warning.
According to Gross, over the past 25 years, three US recessions have matched flat yield curves between quarterly and 10-year US bonds.
"In view of the current 80 basis point spread, which is still far from the spread of 0 points, economists and some Fed officials do not see the danger of recession," Gross said.
Monetary policy, however, following Lehman Brothers bankruptcy in 2008, was "unconventional" and failed to stop buying bonds, despite warnings that a collapse in bonds is "around the corner," said Gross.
"While governments and the US can afford the extra cost of this policy, leverage companies and US investors can not," said Gross.

Will the ECB keep zero interest rates for at least another year?

Europe struggles successfully for the leadership of growth and will gradually shift the US as the engine of the world economy in the second half of the year.
The difference will not be significant, but it shows the advantage of zero interest rates and the cheap euro. The slowdown in US growth does not just come from the process of normalizing of interest rates.
Their change is still insignificant, but the economy is entering the late stage of growth, which will be characterized by a slowdown in investment activity and industry. Consumption remains the most serious factor behind GDP growth, backed by low unemployment and low inflation.
Negative trends in industry and construction do not stop the Federal Reserve in raising interest rates because the slowdown in these sectors is not strong enough. Does this mean that raising interest rates is intended to stop the stock market turning into a bubble? More likely, because the deflationary processes have not passed and the economy does not overheat. In this case, the question arises when the US stock market will become aware of the risks of expensive stocks and of rising interest rates.
According to some analysts, the risks to growth in Europe are much less than the barriers to the US economy. Inflation worries remain in the background, with the European Central Bank holding zero interest rates for at least another year. Political risks are weakening, but tensions between Brussels and London will have economic consequences for both countries, which will gradually increase in 2018.

More accelerated eurozone growth than expected

The economy of the eurozone registered a faster growth than forecast in the past quarter, show data released on Thursday.
Quarterly growth rose to 0.6% in the first quarter, down from previous 0.5% growth forecast. On an annual basis, the eurozone gained 1.9%.
Household spending rose by 0.3% in the first three months of the year, on a quarterly basis, contributing to 0.2 percentage points of the economy's rise.
Investments have risen by 1.3% or contributed to another 0.3 percentage point of growth.
The data becomes reality before the ECB meeting and Mario Draghi's statement on the future policy of the central bank on interest rates.
Still, the bank left the policy unchanged.

ABN Amro: ECB will start to reduce incentives in January

While the sources of the ECB signaled that the market has taken a sharp change in the rhetoric of central bank, ABN Amro analysts do not change their view of readiness in the near future the process of reducing the stimulus measures to begin.
Furthermore, ABN Amro adjusted its forecast and now the baseline scenario assumes the end of the program for purchases of assets.
Strategists believe that in January 2018 the ECB will start to decrease the monthly volume of purchases by 10 euro billion per month, resulting in quantitative easing program will be completed by June, then the ECB will start to normalize interest rates on deposits.
At ABN Amro believe that the first step in this direction will be held in September next year. ABN Amro still retains its forecast for EUR/USD, made in early March:
    Q2 2017 - 1.05
    Q3 2017 - 1.05
    Q4 2017 - 1.10
    1Q 2018 - 1.15
    2018 - 1.20

Dollar up

On Thursday, the dollar gained in price against the basket of other major currencies against the background of the weakening of the euro.
The US dollar index, which shows the strength of the dollar relative to a basket weighted by trade from the six leading currencies, increased by 0.21% to 100.00.
On Monday, amid the failure of Donald Trump's bill on medical reform, the dollar index fell to 98.67, the lowest level in four and a half months.
The withdrawal of the bill increased fears in Trump's ability to realize his economic policy, including tax cuts and increased spending on infrastructure projects.
The EUR/USD slipped by 0.27% to 1,0784, retreating from the high of 1.0905, fixed on Monday, for four and a half months.
The euro fell as a result of yesterday's trading session after Reuters reported that officials of the ECB are wary of making any changes to the statement on monetary policy in April. The fact is that the previous ECB statement as a result of the March 9 meeting was misinterpreted by the markets.
In a previous statement, ECB officials recognized the improvement in the eurozone economy, which led to increased expectations about a reduction in the financial incentive program and a possible increase in the interest rate.
President of the Federal Reserve Bank of Chicago, Charles Evans, said on Wednesday that he supports a further increase in the interest rate this year. This increased demand for the dollar.
The dollar slightly changed against the yen: USD/JPY was at the level of 111.03, recouping further from the minimum of four weeks 110.10, reached on Monday.

ABN Amro: Conclusions from the meeting of the ECB

ECB's press conference from the last week suggests that the European Central Bank is standing in the way of a phased exit from its flexible monetary policy, say experts from ABN Amro.
As believe in ABN Amro, as a first step in this direction, the Central Bank of Europe will make the meeting of the Board of Governors in June. The message for the markets will become more neutral and the possibility of reducing of interest rates in the future or further quantitative easing will drop, analysts say. Then, in September, the ECB will make an announcement on plans to reduce the program for the purchase of assets in 2018, they added. This will depend on the progress of inflation.
At ABN AMRO predict that the reduction in the monthly volume of purchases of assets will begin in April 2018. The pace of reduction would be equal to 10 billion per month. Thus in September 2018 the program for the purchase of assets will be completely phased out, analysts said.
They add that the first increase in interest rates on deposits by the ECB will be in March 2019.

Euro close to the peak of 3 weeks in anticipation of results of the ECB meeting

The euro strengthened and traded at a three weeks peak against the dollar on Thursday in anticipation of the outcome of the ECB meeting, as the US currency slowed down against the background of a rollback of government bonds yields.
The focus of investors this week remains the euro after Italian Prime Minister Matteo Renzi announced his decision to retire after the failure of the referendum on constitutional reform.
Initially falling due to the news about the results of the referendum, the euro showed a strong rally on Monday and since then has been held near the maximum of three weeks against the dollar, as investors await the ECB decisions.
The European Central Bank will announce the extension of the quantitative easing program by six months on Thursday, while leaving the volume of buying up assets of EUR 80 billion, according to a majority of economists polled by Reuters.
In the morning the euro rose by 0.18 percent against the dollar to $1.0770, close to reached on Monday level of $1.0797, a peak from November 15.

Gold fell after the ECB meeting

Gold lost ground during yesterday trading, after the ECB left interest rates unchanged. The spot price of the precious metal fell by 0.6 percent to 1337.40 dollars for an ounce. Futures for deliveries in December retreated to 1341.60.
Important resistance level for the gold is the area around 1352. The first major support is 1327 dollars.
Platinum fell by 0.6 percent to 1078.20 dollars for an ounce, after on Wednesday failed to reach a 2-week high. Palladium retreated by 0.25 percent to 685.25 and the silver is down by 0.90% to 19.58 dollars for an ounce.
Oil prices rose to 47.60 dollars for a barrel after data on oil stocks in the US. For the week to September 3 stocks fell by 14.5 million barrels. Preliminary estimates of economists was for growth by 0.6 million barrels.

By the end of the year ECB may extend the program of quantitative easing

Thursday was very eventful for the major currency pair. Immediately after the September meeting of the European Central Bank, the euro/dollar rose sharply and touched a two-week high at 1.1316, but quickly came back under the 1.13.
ECB left the interest rate at zero, the deposit rate at -0.4% and the monthly purchase of assets amount to 80 billion euro. In his comments after the meeting, Mario Draghi said that QE will continue until the designated period (March of the following year) or longer, if adjustments of inflation are required. The consumer price index, on the assessment of the ECB, is steadily improving. Eurozone GDP in the third quarter will be equal to growth in April-June this year, and in general, the ECB expected growth of the region's GDP by 1.7% by the end of 2016.
Investors appear to be reasoned as follows: while the statistics for the euro area at most part is positive, the European regulator will not increase or extend QE. However, such a possibility is present for further meetings. March 2017 is not so far away as it seems. For half a year significant improvement in the European economic system could not happen, and the ECB is not one of those, who would make desperate attempts to align the boat at the last minute. Typically, Mario Draghi warnes markets in advance about the bank's readiness to act. It is possible that in November and December, the ECB would inform the capital markets of the intention to expand or extend the QE. In the meantime, let the euro fans rejoice.

If the regulators do not intervene, the panic will increase

The situation in the global markets continues to deteriorate very quickly on all fronts. The banking sector in the world shows slump. At the largest German bank - Deutsche Bank - all look scared. After their collapse by 17.5% on June 24, on Friday they still lost almost 10%. In Italy and Spain in the banking sector there is also panic. In Italy on Friday, the regulator has poured 50 billion euros into the financial system, but it did not help for a long time. Credit markets in Europe and the United States are bursting at the seams. The risk premiums are rising on all fronts. On the debt market in the Eurozone there are first hints of correction.
Bets on Fed's raising rates this year have already fallen to zero. Now, market participants are beginning to lay in the expectations not tightening, but easing of monetary policies.
Everyone was waiting for action from the central bank, but no one does anything. More 1-2 days standby and there will be another wave of panic. The ECB and the Fed should intervene.
The worst thing in the current situation is, that the global regulators may simply lose credibility. And, even if they provide unlimited liquidity to the financial sector, this fact is even more scary. This we have seen as example in China in August last year.
The market is now very dangerous and unpredictable, so it's best to stand aside.

In case of Brexit - intervention by the Bank of Japan and the Bank of England

There is a high probability of intervention by the Bank of Japan and the Bank of England in case of Brexit.
Alan Ruskin - currency strategist at Deutsche Bank (DE: DBKGn), considered: "If the British referendum will lead to a drop in the dollar/yen below 100.00, the most likely scenario reaction of the Japanese financial authorities will be currency intervention. Japan will intervene under the guise of Brexit, having received in this case compelling arguments in the form of emergency and dramatic tightening of conditions which reflect the international volatility, not the internal situation. The Bank of England is also unlikely to be "waiting" if the pound against the dollar will fall below 1.30 and will continue to decline, the Bank of England will have a reason for the currency intervention and the ECB and the Fed is likely in a sign of solidarity may accede to it."
The probability of ECB intervention is low, because the eurozone is unlikely in the case of Brexit become the epicenter of the movement of assets.
And the Fed could to intervene only in the event of a significant tightening of financial conditions in the United States, which is also not expected.