Mario Draghi manages to talk down the euro by changing the issue share limit, saying that the situation worsened and lowering forecasts, especially the critical inflation ones. He certainly opens the door without committing to anything.
EUR/USD slips below 1.1180. Update: EUR/USD hits
1.1150. 1.1123 1.1107
There were expectations for some kind of dovish shift in tone given the recent developments, especially in China. Yet this was only one of our 4 ECB scenarios.
Here are some highlights:
- Issue share limit of bond buying increased – a technical and small easing. ECB can hold 33% of an issue compared to 25% prior
- Too soon to conclude that inflation is deteriorating.
- QE to go to September 2016 or beyond
- Decline in oil prices should provide support
- Slowdown in EM weighing on the euro-zone.
- GDP 1.4% in 2015, 1.7|% in 2016, 1.8% in 2017
- Compared with previous data, the outlook has been revised down due to lower external demand.
- EM has further potential to weigh on the economies.
- Inflation forecasts lowered on oil
- Inflation is seen at only 0.1% in 2015, 1.1% in 2016 and 1.7% in 2017. Significantly lower.
- Downside risks to forecasts.
- EUR/USD reached a low of 1.1123 so far.
- Oil prices are lower because of supply.
- Technical aspects will not impede the program.
- The policy is passing through to the real economy.
- We have a reduction in spreads.
- Exchange rate is not a policy target, but we are watching it (nothing new here).
- We will see if the recent moves are just transitory or risk our medium term forecast, and if so, we will do more.
- Challenges in emerging markets will likely not go away very soon.
- We don’t know if this is a short term rise in volatility or a long term rise.
- Expecting to get information on China at the G20 summit.
- No discussion about changes in the size of the QE program or in the pace.
- On a Fed hike: if a rate hike is necessary to achieve its targets, it is a plus for the world.
- In June there was no difference to revise down our projections, and now we did have to.
- Fragmentation is a risk to Europe.
- Supports more fiscal integration.
- Still not seeing a big rise in leverage.
- Press conference ends. It’s Mario Draghi’s 68th birthday.
Here is how the fall looks on the chart: