The euro rallied sharply against its US counterpart on Thursday, as the European Central Bank emphasized its commitment to carrying out its massive bond-buying program “without hesitation.”
The EUR/USD advanced more than 100 pips to 1.0876. The countertrend has created strong expectations for a reversal, as the trend index has turned strongly bearish. The EUR/USD faces initial support at 1.0721. On the upside, the pair is testing the 1.0885 resistance.
The European Central Bank is committed to its recently-implemented quantitative easing program, the record of the March 5 Governing Council meetings revealed on Thursday.
“[It] was essential for the Governing Council to remain firm, implementing the measures adopted without hesitation until the objectives were reached, in line with its commitment to keep this policy in place for as long as needed,” the account of the March 5 meetings showed.
The “objectives” the Governing Council was referring to include long-term economic growth and stable inflation. The ECB, which targets inflation at just under 2%, has seen consumer price growth turn negative this year. As a result, the ECB announced a €1 trillion stimulus program back in January and implemented it on March 9.
Eurozone inflation climbed to a three-month high in March, according to preliminary data released earlier this week. The Eurozone CPI rate climbed to -0.1% in the 12 months through March, compared to -0.3% in February and -0.6% in January.
The ECB’s staff is confident that quantitative easing would help lift the Eurozone economy. Policymakers upgraded their GDP and inflation forecasts last month. The ECB expects growth of 1.5% this year, 1.9% next year and 2.1% in 2017. Inflation, which is expected to remain flat this year, is forecast to rise 1.5% in 2016 and 1.8% in 2017.
However, other policymakers at the ECB have called the revised forecasts into question. The record of the March 5 meetings showed that some policymakers were concerned about “structural bottlenecks in some countries,” as well as rising oil prices. Both of these effects could constrain economic growth in the euro area.
The euro has been hit hard by plummeting inflation and aggressive central bank policies. The EUR/USD posted its biggest quarterly decline ever in the first quarter. The loss was also triggered by a resurgent dollar, which climbed to its highest level in more than a decade.
Based out of Toronto, Canada, Husni Sam Borji is senior macroeconomics analysts who contributes regularly to TradersDNA, where he examines the global financial markets. Husni Sam has authored dozens of government reports and industry whitepapers, as well as thousands of financial articles. Husni Sam holds a BA from the University of Windsor and a Master’s degree in Economic Public Policy from McMaster University.
His expertise includes macroeconomics, fundamental analysis, industry research and global political economy.