Soon after Mario Draghi, announced the results of the ECB Meeting, Euro dropped against US Dollar and Japanese Yen. The main reason is Eurozone monetary outlook that's heavy on the loose bias.

Soon after Governor of European Central Bank (ECB), Mario Draghi, announced the results of ECB Governing Council Meeting, Euro dropped against US Dollar and Japanese Yen. The main reason is Eurozone monetary outlook that's heavy on loose bias. So, how do Euro outlook will affect EUR/USD and EUR/JPY? Firstly, we ought to discuss three important points from ECB meeting that most probably will influence Euro pairs movements this quarter.

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1. ECB Thinks Moderate Growth

Yesterday's ECB meeting is important for Euro due to the sad state of Eurozone fundamental statistics. Eurozone inflation lat week was recorded at 0.5%, lowest number in almost four years which clearly shouted slowing inflation. Apart from that, Eurozone PPI showed unsatisfactory record as well, at -0.2% in February. In the circumstances, several international organiozations has advised ECB to loosen its policy.

Instead, once again ECB insisted that risk of deflation have not increased and growth ought to go on moderately. What about those numbers? apparently it is due to the late Easter. ECB is sure that this month, prices will go up as people celebrate Easter and establishments are increasing goods and services prices.

 

2. ECB Will Take Necessary Steps When Needed

Among all of the options, it seems that it will be easier to cut benchmark rate or put negative rate. There are legal restrictions if ECB will take on Fed-like QE, because unusually for a central bank, by European Union Law, ECB is not supposed to finance the government. As QE is somehow could be called that, then they are going to need much more careful consideration before running in that direction. Although, potentially, QE has more chance in supporting inflation target. Another alternative is by utilizing rate corridor. Rate corridor first applied by Central Bank of Turkey in 2011 by narrowing or widening the gaps between deposit and borrowing rate according to the desired result. It is the right choice if ECB feels doubt to tamper with the 0.25% benchmark rate.

Nevertheless, for now, they are all merely being talked about. ECB seems quite content with the current outlook and forward guidance, and they don't feel the need to do anything but let the status quo to go on.

 

3. Euro Is Not A Policy Target

Recently, Euro has been called on account of becoming too powerful by some ECB officials, including Draghi. Euro has gained 6.8% on USD in the last 12 months, and if it goes further, they suggested that it would mean trouble. Now they clearly say that although Euro is becoming more important, but Euro is not a policy target.

In short, we could say that, ECB does not rule out the possibility to tamper with Euro if by doing that could support Eurozone growth and inflation target.

 

Conclusion on Euro

Among the three points, it could be said that Euro outlook is not good. Point number 1 is the only positive suggestion from the meeting, while the other two tend to undermine the 18-countries currency.

EUR/USD movements will be interrupted by US NFP report today. Consensus quoted by Bloomberg estimated an improvement from 175,000 to 200,000 jobs, as well as a slight fall of unemployment from 6.7% to 6.6%. If NFP is lower then expected, then USD will weaken. But if on the contrary, NFP records more jobs, we certainly could expect Euro to slide deeper.

Meanwhile, Euro is hard at work to halt further losses against Yen. However, it's outlook is still murky. Fundamentally, Japan is in comparable fragile circumstances. Therefore, short term movements is possibly ranging (sideways) until there is a high impact release that could interrupt the trend.