The ECB is also giving forward guidance
The ECB kept rates unchanged on 4 July. However, the
European Central Bank unanimously decided to break a long-standing rule of
"never precomitting" to future interest rates decisions by giving a
forward guidance to keep interest rates at present or lower levels for an
"extended period of time". Nevertheless, it refrained to give any
clarification on the time frame except that it was not twelve months. In a
similar way as Mr Carney sooner during the day, Mr Draghi's forward guidance is
a reaction to the rise in borrowing costs, while the economy is still
shrinking, though at a slower pace. However, unlike the BoE, the monetary tools
to actively lower rates seems more limited. Indeed, the Banking Union is far
from being complete, narrowing the capacity of ECB's actions. However, even
though Mr Draghi still relies on wording, the radical shift of using forward
guidance shows that the ECB should remain as dovish as it is it allowed to be
in the coming months. Therefore, as for the British pound, a sustainable
appreciation of the Euro compared to the US dollar is unlikely.
Rise in EUR/USD should be limited to short-term rebounds
Looking at the technical configuration of the EUR/USD, we
continue to favour a medium-term bearish bias in EUR/USD that should lead to an
eventual break of the support at 1.2662. However, we would favour a sell on
strength strategy as key supports are getting closer and short-term oscillators
are close to oversold levels. Another interesting chart is EUR/GBP, which is
still moving within a range between roughly 0.8411 (1 April low) and 0.8637 (17
April high). In the short-term, the rise following the BoE and ECB statements
suggests that the market is giving thus far more credits to the dovish monetary
policy of the BoE. Another key resistance lies at 0.8815 (25 February peak).
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