ECB’s Small Dovish Surprise

ECBThe Euro fell to retest long-term lows against the U.S. Dollar after the European Central Bank managed to spring a small but significant dovish surprise on the market in its monthly guidance earlier today.

The ECB decided to leave its main refinancing rate unchanged, which was not a surprise to anyone. However, the Bank also announced that “A new series of quarterly targeted longer-term refinancing operations (TLTRO-III) will be launched, starting in September 2019 and ending in March 2021, each with a maturity of two years. These new operations will help to preserve favourable bank lending conditions and the smooth transmission of monetary policy.”

The market took this as a dovish sign and the Euro fell immediately, then fell further during the subsequent press conference. The benchmark EUR/USD currency pair initially bounced off the support at 1.1276, but then resumed its fall to trade below the major psychological level of 1.1250, reaching as far as 1.1239 at the time of writing. A close at the end of tonight’s New York session below 1.1250 will be the lowest close in more than fifty days and would be technically significant as a potential bearish breakdown from the long-term range which has contained the price between approximately 1.1250 and 1.1550 since last November. A close below 1.1220 would be even more technically encouraging for bears.

The Euro’s fall against other currencies, particularly the British Pound in the significant EUR/GBP currency cross, was much more muted and nothing of major technical significance.

A significant knock-on effect from the Euro’s weakening so far has been a further fall in the Swedish Krona against the U.S. Dollar, which fell by more than 1% over the course of the day and is again seeming to approach its all-time low (as the pair is USD/SEK, it is an all-time high price).

Adam is a Forex trader who has worked within financial markets for over 12 years, including 6 years with Merrill Lynch. He is certified in Fund Management and Investment Management by the U.K. Chartered Institute for Securities & Investment. Learn more from Adam in his free lessons at FX Academy.