With EURUSD having lost over 2 handles since Draghi began to speak at the press conference, we thought it worth examining just what he did (and did not) say. As Citi's Steven Englander notes, for the ECB it was a twofer. They can claim they are not engaging in currency wars while giving a big wink and nod on monetary policy ease that says 'sell my currency'. Yesterday when they said they were not too worried about currency, they didn't mention that they would sound very dovish on liquidity and monetary policy and stress the EUR's level as a factor in inflation and economic forecasts. So while they did not do the currency war thing, they did the next best thing.
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Via Steven Englander, Citi,
In fairness, I suspect that Draghi was surprised at how many people in the market walked away from the January press conference with the view that the ECB was the 'hawk' among G4 doves. The comment last month that there had been no discussion on a cut was interpreted as saying the door was closed, while this month he indicated that while there was no cut discussion, they were discussing how to keep liquidity maintained, encourage positive convergence etc. Although the EUR sell-off was associated with a bit of a risk pullback, it actually was driven by the opposite.
Here was another G4 central bank discussing downside risks and the need to keep major monetary contagion in place. Indirectly he was addressing EUR strength. I doubt that he wants to pull back positive contagion but did want to pull back view that ECB was somehow endorsing a tightening of monetary conditions. The combination is actually bullish asset prices, not bearish, even if it unwound weak EUR longs.