The ECB lifted its inflation forecast for this year to 1.7% from 1.3% and to 1.6% from 1.5% for 2018. The forecast for 2019 was left unchanged at 1.7% and Draghi once again stressed that while inflation ticked up recently, this was mainly due to energy and food prices and that core inflation remained low and is only expected to pick up gradually going ahead. So effectively the ECB is sticking to the script and maintains its easing bias despite higher than expected growth and inflation indicators. The hawks at the council, which wanted the ECB to at least drop the reference to the possibility of another rate cut, have lost out, clearly also because there is considerable nervousness ahead of this year’s round of elections, after French yields in particular have been very volatile and highly sensitive to varying election polls. He did say in the press conference that ECB policy has been successful, a more neutral stance was likely, and there was “less urgency” as the statement about “all appropriate measures” had been removed. However, the easing bias remains in place.
The rally in the EUR during the press conference helped push my EURJPY long position from last week to target 2 at 121.80 for a net gain of 146 pips.
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