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The mass media of agitation and disinformation did not want to allow them to stand still and rumors and speculation about the upcoming meeting of the European Central Bank began to spread in the morning. Countless reports said that Mario Draghi could give the markets an unexpected surprise in the form of a much larger than expected reduction in interest rates. At the same time, it was not specified what kind of rates are in question. Indeed, in addition to the refinancing rate, there is also a deposit rate, a capital adequacy ratio, and other interesting things. However, even so, the nerves of investors were damned and even such a lengthy statement was enough to move the common European currency off the ground. It is declining. Although the movement has been modest in the previous days, it has been quite noticeable.

Exchange Rates 12.09.2019 analysis

However, after the opening of the American session, investors received a fundamental justification for the decline of the single European currency. Not in the form of rumors and conjectures from the most honest mass media of agitation and misinformation, but in the form of macroeconomic statistics. The fact is that if the growth rate of producer prices in the United States was assumed to slow down until recently, then this means that it accelerated from 1.7% to 1.8%. Consequently, there is no cause for concern that inflation in the United States may decline. In other words, the Federal Reserve has no special reason to lower the refinancing rate. At least right now, they are not observed and the dynamics of the main indicators is such that these very reasons can not even be seen on the horizon.

Dynamics of producer prices (USA):

Exchange Rates 12.09.2019 analysis

Of course, the main event of the day will be the very meeting of the Board of the European Central Bank, but before that, data will be published on industrial production in Europe, which so far has been reduced by 2.6%. It is predicted that the state of the industry will improve slightly and the rate of decline will slow to 1.3%. However, such positive and happy news is completely uninteresting against the background of the regulator's decision. Moreover, it is practically no doubt that the European Central Bank will reduce the rate on deposits from -0.4% to -0.5% for the first time since 2016. This means that if European banks express a desire to hold temporarily available funds on deposit with the regulator, they will have to pay even more for this than now. The consequence of this will be the inevitable reduction in deposit rates that banks accept from the population. After all, what is the point of taking money from people at a rate higher than which you can place them on the accounts of the regulator? Banks do not place the money brought by people in the form of loans within a minute. The borrower still needs to be found so that banks constantly leave funds on deposits with the regulator. Let it be for a while so that deposit rates for ordinary citizens, as well as companies, will also go down. This will inevitably lead to a partial but the outflow of capital from commercial banks. Let it happen and not immediately, but this is precisely the logical development of events when the deposit rate is reduced. In other words, this step of the European Central Bank is only a prelude to further easing monetary policy.

Deposit rate of the European Central Bank:

Exchange Rates 12.09.2019 analysis

Another highlight of the day is the publication of inflation data in the United States. However, these data come out exactly at the same time when the press conference of Mario Draghi begins, so few people pay attention to this data. Also, there is something to see, since the final inflation data should confirm the fact of inflation acceleration from 1.6% to 1.8%. Moreover, given yesterday's data on producer prices, there is every reason to believe that the data will be better than forecasts. Nevertheless, the nature of the two main news is similar to the strengthening of the dollar.

United States inflation:

Exchange Rates 12.09.2019 analysis

The euro/dollar currency pair once again crept to the psychological level of 1.1000, where they felt support in front of them and formed a pullback. It is likely to assume that against the backdrop of the upcoming ECB meeting, we will see primary stagnation. In case the price fixes below 1.1000, the downward movement may resume and direct us in the direction of 1.0950.

Exchange Rates 12.09.2019 analysis

After the impulse movement of the past days, the GBP/USD currency pair reached the range of 1.2350, where there was a slowdown and in fact, the range formed at the range of 1.2300/1.2385. It is likely that the fluctuation remains within the given framework, where the trading tactics come from the method -a breakdown on borders (1.2300/1.2385).

Exchange Rates 12.09.2019 analysis

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

Performed by Mark Bom,
Analytical expert
InstaForex Group © 2007-2019
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