Today will be the last ECB meeting on monetary policy, chaired by Mario Draghi.
"The ECB is ready to do everything necessary to protect the euro" - these words made in 2012 will go down in history, becoming the cultural heritage of the retiring head of the ECB on October 31.
"At that time - in the summer of 2012 - there was a huge systemic risk. Draghi saved not only European sovereign governments, but all European banks, especially given that they are linked like dominoes through interbank overnight lending. In legacy, Draghi is passing on a much healthier financial system with very affordable rates and balanced programs to continue to drive activity and consumer spending, " said Mondher Bettaib of Vontobel Asset Management.
The head of the ECB, indeed, skillfully managed financial markets, but left his post in a difficult time for Europe. Germany is on the verge of a recession, inflation in the EU has slowed to 0.8%, Brexit's fate is still unsettled, and a more serious trade war could erupt between Washington and Brussels than between the United States and China, given the impressive volume of US exports to Europe.
Thus, seeing Super Mario as President of the ECB are, on the one hand, under a storm of applause, and on the other, against the backdrop of increasing criticism of the regulator's last steps.
Skeptics argue that lowering the ECB's deposit rate by 10 basis points, to -0.5%, will hit depositors even more.
95% of analysts recently surveyed by Bloomberg do not believe that the revival of European QE in the amount of €2.6 trillion will help the region's economy.
At the September meeting of the Governing Council of the ECB, representatives of Germany, the Netherlands, France and Austria openly opposed certain elements of the new stimulus package. Recently, some of them have made it clear that they are ready to abandon claims due to the fact that from November the ECB will have a new chairman - Christine Lagarde. However, experts warn that public opposition to the decisions of the regulator weakens confidence in it and may complicate the task of the next head of the ECB if necessary to mitigate monetary policy in the future.
It is expected that at the upcoming meeting, Draghi will speak in support of the September stimulus package and may even attempt to defend all the measures taken during his tenure at the head of the ECB, drawing attention to the following points: the fall in borrowing costs to record low levels, the weakening of political risks of peripheral eurozone countries, a strong labor market and growing confidence in the euro.
In addition, Draghi can once again emphasize the need to ease the fiscal policy of the eurozone countries.
However, the transfer of the ECB Chairman of his former merits, the protection of the revival of QE and calls to national governments may not provide adequate support to the bears on EUR/USD.
Oxford Economics experts believe that after the announcement of a large-scale monetary stimulus in September, the ECB does not have any opportunity to make serious decisions in October.
ABN Amro predicts that the regulator will reduce the rate on deposits to -0.6% in December, and from March will increase the scale of purchases of assets under QE, but few are of this opinion.
BNP Paribas believes that in the coming months the ECB will operate in autopilot mode, as the Governing Council collects data on how the decisions already made by the regulator work in practice.
It is possible that the ECB monetary expansion has reached its limit, while the Federal Reserve, according to the consensus forecast of Reuters analysts, will lower the rate on federal funds in October this year and early next year.
75% of more than 100 Reuters respondents believe that trade conflicts will push the US economy into a recession, the chances of which within 12 and 24 months are estimated at 35% and 45%, respectively. According to analysts, trade relations between the United States and China are developing according to the "one step forward, two steps backward" scenario. Despite the fact that the parties have concluded a truce, more imports are currently under tariffs than three months ago.
The wider (in comparison with the ECB) space for the Fed's monetary expansion, the US economy is beginning to feel negative from trade disputes, as well as the hope that it will be possible to avoid a "hard" Brexit, are pushing the EUR/USD rate up.
Thus, the press conference of Mario Draghi following the October meeting of the Governing Council of the ECB could be a good opportunity to buy the single European currency with a target of $1.1215 and $1.1270.
The material has been provided by InstaForex Company - www.instaforex.com