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After the European Central Bank left its record loose policy unchanged, President Mario Draghi met  the press amid mounting economic pressure on the euro-zone. While Draghi talked  about intensified work towards QE (including hiring a consultant), expectations haven’t changed. Moderate growth and higher inflation in the future are still foreseen. Later on, Draghi listed the reasons of why the fundamentals support a weaker EUR/USD and that began happening.  

Here is a live blog of the event.

Update:  EUR/USD falls after Draghi explains why it should do so


  • Moderate recovery to continue
  • Recent weak inflation not unexpected, due to energy.
  • Inflation will pick up later on.
  • TLTRO to see sizable pickup of 450-850 billion euros.
  • Seriously working on ABS and hiring a consultant.
  • Geopolitical risks has increased
  • Draghi brings a more lax attitude to the exchange rate.
  • But later: Fundamentals for a weaker exchange rate are in place. Draghi explains why EUR/USD should fall.
  • EUR/USD finishes the press conference just below the opening rate.

Live blog

  • 12:15 GMT The press conference begins at 12:30. All times are GMT.
  • 12:15 You can watch the press conference live here.
  • 12:15 At the same time, the US will release the weekly jobless claims. 305K is  expected. Follow the release on the forex calendar.
  • 12:15 EUR/USD is  depressed under 1.34 towards the publication.
  • 12:17 EUR/USD now sliding below 1.3370. The cycle low is 1.3332, just above support at 1.3325.
  • 12:18 Earlier in the day, we had weak industrial output from Germany and the news about Russia sanctioning food imports from the EU, the US and other countries.
  • 12:21 No new forecasts are released. They will be released in September.
  • 12:22 EUR/USD nearly reached 1.40 in May, when Draghi hinted of action in June.
  • 12:23 In June, the ECB introduced a cut in the interest rate, a negative deposit rate and announced targeted loans called TLTRO  that will begin in September.
  • 12:24 The ECB  is now facing the “deflation monster”.
  • 12:25 Next year, the ECB will hold meetings only every 6 weeks.
  • 12:28 The press conference from the ECB headquarters in Frankfurt begins soon.
  • 12:30 Press conference begins
  • 12:30 US jobless claims at 289K – good  news for the US
  • 12:31 Moderate recovery
  • 12:31 TLTRO to enhance  policy stance.
  • 12:32 We have intensified  QE related work – EUR/USD slides
  • 12:33  Governing council unanimous in using unconventional instruments.
  • 12:34 Strongly  determined to safeguard price stability.
  • 12:34 GDP rose +0.2%. Q2 indicators have been volatile due to technical factors.
  • 12:35 Domestic demand should be supported later on. Positive contribution from measures.
  • 12:36 Improving global  demand should support export
  • 12:37 Risks remain on the downside: geopolitical risk could  affect negatively the economic conditions.
  • 12:38 Inflation was lower due to lower energy price inflation.
  • 12:38 Inflation expectations remain firmly anchored. EUR/USD stabilizes.
  • 12:38 Exchange rate is mentioned but not critical.
  • 12:39 Subdued lending activity.
  • 12:39 External demand by outside investors continues.
  • 12:40 Lending to non-financial corporations remains weak. Still some deleveraging.
  • 12:40 Some signs of stabilization in loans.
  • 12:41 Banks reported an increase in loan demand. Some good news?
  • 12:41 Banks should take full advantage of ECB loans.
  • 12:41 Draghi reiterates that reforms should be enacted.
  • 12:42 Fiscal consolidation should be done in a growth friendly manner.
  • 12:43 Questions begin
  • 12:43 A question about TLTRO and Ukraine crisis.
  • 12:43 TLTRO will create a significant expansion in credit as this is funding to the real economy.
  • 12:44  Expecting a sizable pickup.
  • 12:44 Indications that TLTROs will happen at the right time.
  • 12:45 Geopolitical risk increased: Iraq, Gaza, Syria, Libya, Ukraine.
  • 12:46 EUR/USD rises back up towards 1.3380 as we have no new message from Draghi.
  • 12:47 Draghi asked about geopolitics.
  • 12:48  Risks come from the price of energy.
  • 12:49 Intensified preparations on the ABS (QE). “I would only add that we are continuing the work  regardless of regulatory changes”.
  • 12:50 Hiring a consultant to help design such a program.
  • 12:51  The work we are doing is in expectations that we take action. So, QE is still seriously on the agenda.
  • 12:52 Draghi not surprised by 0.4% inflation – mostly due to energy.
  • 12:53 However, inflation expectations for the medium and long term remain firmly anchored – this is the main message – EUR/USD rises towards 1.34.
  • 12:55 Differences between soft data and hard data.
  • 12:56 The recovery remains weak, fragile and uneven
  • 12:57 Uneven part of recovery has become more interesting: pretty clear that countries that countries that have taken structural reforms are performing better.
  • 12:58 Signs that are “less bad” in loans. The decrease in lending is smaller and smaller.
  • 13:00  For the first time, we are seeing a rise in demand for loans, says Draghi. That might be the reason for his tranquility.
  • 13:01 ECB not alone in overestimating inflation.
  • 13:02 From 2012, the exchange rate has a strong impact.
  • 13:03 ECB acted within its mandate.
  • 13:04  Structural reforms are important.
  • 13:05 Question about Italian GDP.
  • 13:06 IS the ECB ready for deflation?
  • 13:07  Low GDP figure for Italy is due to low private investment
  • 13:08 Low level of private investment in general, less than in the US.
  • 13:09 Expected demand but also reforms are to blame – general uncertainty due to the lack of reforms. This discourages investment.
  • 13:10 It takes investors and young businesses too much time to get going.
  • 13:11 Such reforms have an immediate benefit.
  • 13:12  Monetary policy announcements of June have been successful
  • 13:12 Since May, OIS declined by 43 basis points, Euribor by 13 points, excess  liquidity has been stable, etc.
  • 13:12 Fundamentals for a weaker exchange rate are in place.
  • 13:13 Slowing net trade surplus, decline in inflows, decrease in euro shorts.
  • 13:13 Markets have perceived that Fed and ECB policies are on a diverging path.
  • 13:14 Interest rates  will stay lower in the euro-area much longer than for the United States.
  • 13:15 Draghi talks like a forex analyst and EUR/USD slides.
  • 13:16 QE could include private and public assets.
  • 13:17 Tough question about BES in Portugal. Draghi only says that the authorities took swift action.
  • 13:18 The episode has been kept contained. Draghi puts light on the positive side of things: the quick resolution rather the lack  of sight beforehand.
  • 13:19 If geopolitical risks materialize, we will have weaker growth.
  • 13:21 Reforms are critical – countries with more reforms can weather such a storm.
  • 13:22 Q: Will we see more fragmentation in the euro-zone? The reporter singles out  France in relation to lack of reforms.
  • 13:23 Draghi says it is complicated. He cannot deny that France is on his list…
  • 13:24 Not the ECB business is to determine wages.
  • 13:25 On  countries with deflation: is it a short or long term affair?
  • 13:26 Long time: self fulfilling expectations for falling prices causing the postponement of consumption. We are not seeing it yet.
  • 13:27 Entire sector could be annihilated. New sector must emerge.
  • 13:28 “I listed before why the fundamentals for a weaker exchange rate are in place”.
  • 13:29 Fresh forecasts confirm our outlook
  • 13:30 In a sense, ABS is just a name.  Previous ABS had many “imperfections”.
  • 13:31 Our effort isn’t simple.
  • 13:32 Last question: BES. There was no public money involved.
  • 13:35 Banks have been raising a significant amount of capital in the past year.
  • 13:36 Draghi goes on to explain the measures regarding banks.
  • 13:37 He signs off by wishing happy holidays. The press conference has ended.


While there are some green shoots of looser lending conditions from some banks in the euro-zone and the EUR/USD did drop from the previous meeting, the economic indicators are dire. This includes inflation, but not only inflation. Other clouds are also darkening.

Here are Draghi’s 4 main headaches:

  1. Even lower inflation:  a new 5 year low of 0.4%.
  2. Slowing growth:  Italy in recession,  German industry wobbling.
  3. Banking worries: The banking issues in  Portugal’s BES deteriorated quickly. Can the ECB prevent a potentially bigger crisis?
  4. Russian sanctions: The  fresh ban on food imports  this weighs on both growth and on inflation, as  the euro-zone could suffer from excessive supply of food.

Here is our podcast which discusses the ECB options:

Download it directly here.

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