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The European currency regained optimism and showed growth. The reason for this was the commentary by the ECB President, Mario Draghi, regarding the introduction of a stimulus package. The head of the regulator emphasized that the probability of a recession is low at the moment, which also gave confidence to the European currency.

Exchange Rates 13.09.2019 analysis

After the unveiling of the new stimulus package, it became known that the ECB is cutting rates and restarting the strategy of quantitative easing (QE). According to M. Draghi, this is necessary to combat the economic slowdown. According to experts, the list of incentive measures is very impressive. The decision of the regulator will help stimulate the Eurozone economy and reduce the risk of recession, experts say.

Recall that after the statements of the head of the ECB, the European currency collapsed sharply. The EUR/USD pair fell by 0.8% to 1.0926–1.0927, which is a record low lately. After the press conference, M. Draghi, the tandem quickly turned upward, gaining a foothold above 1.1080. The EUR/USD pair soared more than a figure from the low of Thursday, September 12. Currently, she has overcome this mark and is growing steadily, reaching indicators of 1.1100-1.1105.

The stimulus package adopted during the ECB meeting includes five key elements. These include:

1. Reduction in interest rates by 10 bp to -0.5%.

2. Refusal of the calendar pegging of market signals.

3. Restarting the asset buyback program.

4. Changes in the TLTRO refinancing program, in particular, the liquidation of the 10 bp spread and providing banks with more favorable credit conditions.

5. The introduction of a two-level system of rates that protects part of bank capital from negative rates.

Analysts pay attention to three reasons for the reversal of the European currency. Firstly, it is an appeal to governments by the head of the ECB to strengthen fiscal stimulus. He insists on the gradual but steady implementation of this reform. Draghi is convinced that this is necessary to strengthen the potential for long-term economic growth. Secondly, it is a long-term application of the program of quantitative easing (QE), which will have a positive effect on the economy. Draghi insists on its use on an ongoing basis It is possible that an endless QE program will be of great importance for economic incentives. Thirdly, the current actions of the ECB guarantee a further reduction in the Fed rate, experts say. The rate cut should improve the European economy, and the prospect of a softening Fed policy supports the EUR/USD pair.

According to experts, the events of this Thursday marked the bottom of the EUR/USD pair. As a result, one of the largest short-term risks for the European currency was left behind. She is gaining strength and is actively growing. However, external risks remain, which include the actions of US President Donald Trump and the threat of a "tough" Brexit. The American leader considered the ECB's decision to be a "weakening euro", so analysts recommend not to forget about the possible response from the United States, including the introduction of tariffs.

Exchange Rates 13.09.2019 analysis

Performed by Larisa Kolesnikova,
Analytical expert
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