Article by ForexTime
The Euro edged higher on Monday and positive momentum returned as the uptake from the LTRO was in line with expectations. IFO cuts German 2015 growth forecast to 1.5% from 2.2% expected previously. The forecast for this year was cut to 1.5% from 2% back in June. French inflation fell more than expected, which could put additional pressure on the ECB come 2015.
The TLTRO uptake came in within ECB estimates and within market expectations. The Executive Board member said this targeted tool has been well-received by our counterparties, adding that in the first two operations banks that participated made use of an average of nearly 80% of their allowance and that the number of participants increased, with a balanced distribution of liquidity across countries.
The ECB allots 129.85 billion in second TLTRO. After the modest uptake in the first TLTRO it was hoped that banks would be more forthcoming once the ECB’s comprehensive assessment was out of the way, but it seems this still sparked only limited interest. This makes it even less likely that the ECB will manage to expand its balance sheet towards levels last seen in early 2012 without additional measures.
French November HICP inflation fell to 0.4% year over year from 0.5% year over year in the previous month. As elsewhere oil prices are a key driving factor behind the drop in the annual rate, which was in line with our forecast, but a tad below consensus estimates. The official ECB line focuses on the inflationary impact of lower oil prices, but the Bank of France also highlighted the positive growth effects from lower energy prices today, which mirrors the assessment of the Bundesbank.
The EUR/USD edged to the top end of the current range as momentum gain traction. The MACD (moving average convergence divergence) index generated a buy signal. This occurs as the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread. Support is seen near the 10-day moving average at 1.2390, which resistance is seen near the November highs at 1.2585.
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