Dovish ECB Sent GER30 to New Record Highs
GER30 Analysis
The European Central Bank raised rates by 0.25% as widely expected, in its ninth straight move, bringing the cumulative tightening to 452 basis points. However, it softened the language of the policy statement, now saying that interest rates "will be set" at sufficiently restrictive levels. The previous statement read "…will be brought…". [1]
According to Mr Lagarde, the "slight" change is "not just random or irrelevant". Echoing her US Fed counterpart a day earlier, the ECB President refused to provide forward guidance, touting data-dependence. In Regards to the next meeting, she said that "we might hike and we might hold" and when asked if there is there is more work in raising rates, her reply was: "At this point in time, I wouldn't say so".
Although she stressed the strong commitment to "break the back of inflation", the dovish tone was evident. It was the first press conference in a while, where she did not point to further policy firming and more to it, she opened the door to a pause.
Despite this year's aggressive ECB tightening, GER30 is having a great run and reacted positively yesterday's "hold" talk, clinching fresh record highs and bringing 16,946-17,000 in the spotlight.
The European economy is slowing down and contracted by 0.1% in Q1, with Ms Lagarde acknowledging yesterday that the near-term economic outlook "has deteriorated". This week's preliminary PMIs were not good either, while the latest lending survey showed further tightening in credit standards in the second quarter [2].
These factors may contain GER30 and despite talking about a pause, the central bank may have a hard time delivering such an outcome. Headline inflation may be coming down, but at 5.5% y/y in June, it is still far from the 2% target. Furthermore, the core reading is persistent and actually ticked up in the last print.
GER30 has failed to find acceptance in its recent visits above 16K and a downside breach would not be surprising. However, the DMA200 look distant at this stage and prospects for a less aggressive ECB put a high degree of difficulty in such fall.
Nikos Tzabouras
Senior Financial Editorial Writer
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.
References
| Retrieved 28 Jul 2023 https://www.ecb.europa.eu/press/pressconf/2023/html/ecb.is230727~e0a11feb2e.en.html | |
| Retrieved 18 May 2024 https://www.ecb.europa.eu/press/pr/date/2023/html/ecb.pr230725~8358d3939d.en.html |
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