Draghi’s signals are EUR positive?

Last Friday ECB President Mario Draghi gave an interview and judging by the comments some analysts have interpreted it as a EUR positive signal, as the rejection of a rate cut/QE extension in December.

With a Fed that will hike key rates in December after all, and a BoJ that will not extend its QE programme despite the fact that it continues to miss its targets (and certainly does currently not even consider implementing completely different steps) it seems to me that the market last week slipped into some kind of "everything will be alright" sentiment. 

Of course, Draghi is happy that the 5Y×5Y inflation expectations (i.e. the market's bet on average inflation levels between late 2020 and 2025) has returned to levels above 1.7% (at present: 1.72%). 

"And indeed, above all the fact that the rise in the inflation expectations is not due to a move of the allegedly exogenous oil price is an important achievement on the part of the ECB. Clearly an exogenous factor is not necessary to convince the market of the success of the ECB's reflationing efforts", says Commerzbank. 

However, the question does arise why inflation expectations had risen recently. If it was the increasing expectation of further expansionary (and successful) ECB measures that caused this rise Draghi cannot skip the December step without running the risk of endangering what has been achieved so far. 

So for the time being the market is likely to be busy trying to interpret the ECB's stance. The degree to which targets are being missed does not really depend on the real economic performance of an economy. Not even a humming economy causes a rise in inflation. 

Last week a televised interview with Riksbank governor Stefan Ingves made it very obvious that central bankers worldwide are watching this phenomenon with a high degree of visible helplessness. 

"Not even positive PMI data is going to solve the problem of a lack of inflation. Only that many economists and market participants have not yet realised that. So it is still possible that positive PMI data will support the euro. Should it is witness this effect today it would not be sustainable though, but would only be the result of outdated paradigms that have become obsolete in the current environment", added Commerzbank.