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Draghi sees low inflation but no deflation, keeps some

After the ECB surprised everybody with a shocking decision to cut the interest rate to 0.25%, ECB president Mario Draghi met the press to explain the move, talk about what the ECB sees and perhaps provide news for future moves. He sees low inflation but no deflation (not Japan). A negative deposit rate was discussed, but the ECB wants to keep some of its artillery.

EUR/USD already crashed 150 pips before stabilizing and lost two long term support lines. After dropping below 1.33, EUR/USD finally recovered, but will remains on low ground, to say the least. Here is the full live blog of the event.


  • Risks to the downside
  • Rates low or lower (to 0%)
  • Low inflation, but no deflation.
  • A negative deposit rate was discussed and we are technically ready.
  • LTRO is also a weapon, but wasn’t discussed.
  • Differences about when to act
  • We believe that the interest rate cut is effective.
  • Exchange rate wasn’t mentioned in rate discussion.

Live Blog

  • 13:20 GMT: All times are GMT, press conference begins at 13:30.
  • 13:21 Also note that the US releases the first estimate of Q3 GDP.
  • 13:25 You can also follow the press conference on Financial Juice or at the ECB website.
  • 13:30 ECB press conference begins, Draghi mentions forward guidance.
  • 13:31 EUR/USD already lower, also on strong US GDP.
  • 13:33 Monetary and credit dynamics remain subdued.
  • 13:34 “long period of long inflation”. – EUR/USD already at 1.3317.
  • 13:35 Forward guidance reviewed and re-confirmed: present or lower level for an extended period of time. EUR/USD gets closer to 1.33.
  • 13:36 Full allotment as long as necessary.
  • 13:37 We decided to conduct the 3 month LTROs.
  • 13:38 Fiscal consolidation makiing its way to the real economy. Some inflation related to energy prices. Unemployment remains high. Austerity weighs on activity (in other words).
  • 13:39 Annual inflaiton decreased to 0.7% (we know). This decline was stronger than expected, due to lower food prices, fuel and also services.
  • 13:40 Annual inflation rates are expected to remain at low levels for the coming months. Price pressures subdued.
  • 13:41 Long and medium term inflation expectations anchored. But, long term low inflation.
  • 13:42 Risks to the downside. EUR/USD stabilized at 1.3320 in the meantime. Annual growth in M3 moderated.
  • 13:43 Inflows into the euro-zone pushed money circulation higher.
  • 13:43 Still weak low demand, but some stabilization. Since the summer of 2012, there has been some stabilization. Essential that fragmentation further declines.
  • 13:44 Prolonged low inflation. Euro-zone government debt ratio expected to rise.
  • 13:45 Statement part ends, questions begin.
  • 13:46 Can inflation drop lower? It will extend for “some period of time”. Answers in December. Not going to be a short time.
  • 13:48 Low inflation, but no deflation.
  • 13:50 EONIA unaffected by lending rate.
  • 13:51 We discussed a negative interest rate. It is part of our artillery.
  • 13:51 LTRO part of the artillery, but was not really discussed today.
  • 13:52 You are never listening to the statement”
  • 13:53 Discussion today was wholly in agreement about the need to act. Differences about when to act.
  • 13:54 We have more tools in our shed.
  • 13:55 Inflation risks are broadly balanced.
  • 13:56 We believe that the interest rate cut is effective.
  • 13:59 The market was already seeing deleveraging of banks.
  • 14:00 Credibility of banking sector very important.
  • 14:02 The founding fathers thought about measuring errors and acknowledged the differences between the countries.
  • 14:03 EUR/USD is feeling better at 1.3334.
  • 14:04 Measures’ effectiveness is reduced when going towards the lower bound.
  • 14:05 Question: Markets were astonished. What about the communications strategy? Draghi explains that things have changed.
  • 14:08 EUR/USD continues recovering to 1.3345.
  • 14:10 Draghi deflects question about Ireland.
  • 14:13 Question about the exchange rate:Answer: the exchange rate didn’t play a role and was probably not mentioned.
  • 14:15 Fragmentation has improved
  • 14:16 EUR/USD continues recovering and climbs above 1.3350.
  • 14:20 “We don’t live in an island”, but forward guidance has helped.
  • 14:21 Draghi mentions the taper discussion in the US.
  • 14:22 FG helped in reducing volatility and sensitivity in money market rates.
  • 14:23 Question about the euro-zone and Japanese deflation. Draghi says: No.
  • 14:25 Draghi remains us about the stress tests, absence of a backstop (pats himself on the back), PSI, etc. “We are now coming out of that”.
  • 14:26 Draghi pround that the euro-zone has a primary surplus, but it doesn’t promise a “gallop” in growth.
  • 14:28 Draghi asked about future bank supervisor position
  • 14:30 Not up to us to decide about our mandate.
  • 14:30 We have acted fully in line with our mandate.
  • 14:31 EUR/USD continuing to recover, moving above 1.3360.
  • 14:33 We will be clearer in December about inflation, but it will be around energy prices and not a full deflationary environment.
  • 14:34 Inflation around 2% will not come next month.
  • 14:35 Press conference ends

Analysis:  Draghi means business with today’s ECB rate


After a few good months, some dark clouds covered the euro-zone, including lower business confidence, a fall in retail sales, rising unemployment and most importantly for the ECB: a big drop in inflation. The fear of deflation hurt the euro, but most analysts expected the ECB to settle for a hint about future policy rather than action. However, the ECB chose to cut the rates.

Resistance awaits the pair at is at 1.3460 and 1.3415. Support is at 1.3325 and 1.3243. For more levels and charts, see the  EUR USD forecast.

Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.