European Parliament - Brussels, Belgium. Image source: Iaroslav Danylchenko © 123RF.com
The President of the European Central Bank Christine Lagarde spoke in from of the Committee on Economic and Monetary Affairs of the European Parliament on Thursday.
The focal point of her speech was focused on the appropriateness of the European monetary policy, and the currently undergoing process of its re-evaluation.
Lagarde presented a mostly optimistic outlook on the current state of affairs in the European economy, which is more or less the only welcoming news that European investors got from the meeting.
However, she acknowledged for the second time in the last several months the fact that the current structure of the monetary policy might be outdated or at the very least partially ineffective, which is why the euro fall shortly after the conclusion of her statement.
“More than 16 years have passed since the ECB last reviewed its strategy. And as we discussed in December, since 2003, the world economy has undergone profound structural changes that have transformed the environment in which monetary policy operates.”
Despite the moderate growth that was recorded in Europe in the last fiscal quarter and the resilience that the broader economy has demonstrated in spite of subdued global demand, investors fear that if the ECB determines that its monetary policy needs to be revised, this might bring about a new type of uncertainty on the market.
Such a revision would not only take time to be concluded, but it would also have to be conducted in the current unstable geopolitical landscape globally and fragile world economy.
That is why some experts have questioned whether now is the best time to conduct such a review, seeing as those structural and profound changes that were noted by Lagarde might not be entirely discounted by Eurozone's economy yet.
In other words, the ECB is right to question the applicability of the current monetary policy. However, the economic conditions might not offer a clear and concise picture of the policy's impact on the underlying economic processes.
That is why the euro weakened marginally against other currencies during Thursday's trading session. The undergoing strengthening of the dollar further underpinned this tumble.
Meanwhile, the EURUSD extended its bearish downswing, and the price of the pair is currently trading around 1.09680 – a level that was last tested in Late-October 2019.
The development of this bearish correction was first examined in our weekly expectations update from Monday. There you can read more about the relation of Elliott Wave Theory to the current price action.
Overall, the bearish sentiment is very strong at the current moment, and the MACD confirms the strengthening momentum in the price action.
EURUSD 4H Price Chart. Image source: Trendsharks ©, created with TradingView.com
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