Euro Plummets to New Lows on ECB Warnings
EUR/USD plunged to a new 20-month low on Thursday. This happened after the European Central Bank (ECB) cut its 2019 economic growth forecast drastically. The outlook was slashed from 1.7% back in December to a new estimate of only 1.1% GDP growth.
Aside from this surprise announcement, the ECB kept the euro area’s record-low interest rates unchanged, as expected. But it also postponed expectations of a rate hike to at least the beginning of 2020. Previously, the central bank had indicated there was potential for a hike after this summer.
In addition, the ECB’s statement announced a new program to stimulate bank lending amid declining economic sentiment. In the past, such a program was intended for economic crises.
ECB Outlines Economic Risks
ECB President Mario Draghi stated during Thursday’s press conference that “the risks surrounding the euro area growth outlook are still tilted to the downside.” Draghi also said, “the persistence of uncertainties related to geopolitical factors, the threat of protectionism, and vulnerabilities in emerging markets appears to be leaving marks on economic sentiment.”
Euro Currency Tanks
This surprising combination of a much lower growth outlook than expected, delayed monetary policy normalization, and additional central bank stimulus, placed heavy pressure on the already-beleaguered euro. Not since June 2017 has the euro area’s shared currency fallen to such depths against the dollar, even dropping below the lows of November. Of course, the ECB’s announcement also weighed heavily on global equity markets. But the negative effect on the euro was even more sharply pronounced.
Where Could the Euro Go from Here?
EUR/USD has now broken down below key technical support and fundamentals are looking increasingly pessimistic. The EUR/USD currency pair could continue to fall towards the 1.1000 level or substantially lower. This could be accelerated even further if the U.S. dollar continues to strengthen to new highs.
On the horizon, a major economic release that will likely drive the dollar’s movement in the near-term will be Friday’s U.S. jobs report (see our Market Events & Earnings Calendar for more upcoming market events).
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Senior Market Analyst at The Technicals
A veteran global macro trader/analyst, Bart focuses on major market moves in currencies, commodities, fixed income, and global equity indexes. Bart stresses inter-market correlations and dynamics while keeping a close eye on risk. He has published countless market analysis pieces and has been a guest expert for a variety of major financial media. Contact Bart