The ECB's meeting on monetary policy turned out to be sad for the European currency, and for all major currencies trading in Forex against the us dollar.
The unexpected decision by the European regulator for the markets not to stop buying assets under the European economic stimulus program in September this year, but only to reduce them to 15 billion euros from 30 billion euros and to extend the program until the end of this year, caused a long-time collapse of the European currency, primarily against the US dollar. Against the backdrop of these events, the main currency pair EUR/USD collapsed by almost two and a half figures, approaching the low end of May.
This market reaction can be explained by the unexpected decision of the European regulator. Earlier, after the consumer price index in the euro area soared to an annualized level of 1.9%, there were hopes in the market that the quantitative easing program would be discontinued in September. This was facilitated by comments from ECB representatives. The market believed this, and when they saw that the bank was showing considerable caution, a massive profit-taking and the opening of short positions in the euro commenced. We believe that the main reason for the cautiousness is the beginning of the trade war between the EU and the US, which could seriously damage the European economy, in which case a sharp change in the monetary policy of the Central Bank could serve as a catalyst for slowing down economic growth in the eurozone or even the beginning of its reduction.
Observing this scenario, we believe that the single currency will continue to decline. It may receive a small boost in the Eurozone's consumer inflation data today, perhaps in the wake of positive data, but it will most likely be perceived by the markets as an excuse for continuing to sell the main currency pair. Also on this wave, the fall of the sterling and a number of other major currencies may continue.
As for the British pound, it is now tightly "tied" to the euro, and for the falling European currency, it can also continue its decline towards the US dollar.
Forecast of the day:
The EURUSD pair is trading above the level of 1.1550. It can be adjusted on the wave of positive data on consumer inflation in the euro area up to 1.1520. We consider it necessary to sell it from this level or after breaking through the level of 1.1550 with a probable target of 1.1470.
The GBPUSD is also under pressure. Its decline to 1.3100 may resume after overcoming the level of 1.3200.