The July ECB meeting yesterday turned out to be something of a disappointment for traders, given that the event failed to provoke any meaningful directional moves. While no policy adjustments were expected ahead of the meeting, the focus was on the bank’s outlook. With the ECB having recently announced an upward revision to its inflation target (now at 2% from close to 2%), the market was expecting Lagarde to drive home a heavily dovish message.

ECB To Remain Accommodative

Broadly speaking, the meeting was a dovish event. The ECB underscored its new inflation target and reaffirmed its commitment to maintaining an easing presence in the market. Indeed, Lagarde said that the bank raised its inflation target to “underline its commitment to maintain a persistently accommodative monetary policy stance to meet its inflation target”.

Rates To Stay Lower For Longer

In terms of forward guidance, the message was decidedly dovish. Lagarde highlighted the bank’s commitment to continued support the economy and warned that rates will stay in negative territory until the bank’s new 2% inflation target is achieved in a sustainable manner. Within this new framework, Lagarde outlined that the bank will be tolerant of transitory inflation overshoots, essentially underlining the “lower for longer” implications of the new inflation target.

Disagreement Among Policymakers

Notably, in the press conference following the decision, Lagarde admitted there had been “divergence” among members with regard to the bank’s decision and outlook, especially regarding the guidance on rates. Recently, some within the ECB camp have been calling for a tapering of the bank’s QE program. With Lagarde now outlining a more aggressively dovish stance this division is likely to grow.

Critics Warn Of Dangerous Inflation Rise

Critics of this approach warn that the ECB, similar to the Fed and BOE, is risking driving inflation into dangerously overrun territory. Hawks are warning that if measures are not taken soon, inflation will run well beyond target and then require much more dramatic methods to be brought back down to target. In response to the meeting, EUR has been fairly muted but is trading a little higher given that, beyond the guidance, there were no real dovish developments, particularly with no mention of the PEPP being extended.

Technical Views


For now, EURUSD continues to trade within the falling wedge pattern which has framed the recent decline. Price is holding above the 1.1703 level support and with strong bullish divergence in both RSI and MACD, upside risks remain. Bulls can look for a break of 1.1840 to target 1.1961 initially.