European Central Bank Hints at Policy Change…

In this weekend update we look at the European Central Bank (ECB) minutes.

During the ECB press conference, Mario Draghi indicated that the central bank is likely to revisit its communication stance in early 2018. A revisit of the communication stance is being read as an indication that they would begin reducing their bond purchasing/ monetary stimulus program.

The eurozone has seen its best growth in over a decade and the data would certainly support the idea of tapering the current quantitative easing program. The more hawkish tone from the ECB caused the euro to spike and we are seeing multiyear highs tested, pushing the EUR/USD pair to a new 3 year high.

although there is a lot of excitement around the euro this past week and we are seeing major breakouts, we should remember that the euro spiked when Draghi made similar comments last year and there was no change in monetary policy. It would also be good to remember that the U.S. Treasury yields are over 2% higher than the eurozone which also creates a bias toward the U.S. dollar fundamentally.

We do not expect to see the euro pass against the euro without a follow-through from the ECB. In the meantime, we will be considering short-term bullish position until 1.25 is reached and then be looking for bearish opportunities against the euro while being vigilant to the ECB’s actual monetary policy.