EUR/USD slips from 1.1230 levels to a low of 1.1205
The report by Bloomberg here is a bit of a mixed message for traders to figure out. On the one hand, the euro fell off but on the other, German bond yields have climbed following the headlines. 10-year bund yields are up by 1.5 bps to -0.311% from -0.326% earlier.
Meanwhile, we're seeing EUR/USD slip to a low of 1.1205 after having failed to get above the key hourly moving averages close to 1.1240 in trading today.
Right now, support is seen closer to the 1.1200 handle once again with bids lined up around 1.1190-00 as well as the 9 July low @ 1.1193.
As for interpreting the report, there's going to be a lot of debate on the issue moving forward now that we're hearing some thoughts on the matter but ultimately, the thing to consider is that this isn't a change that is going to take place any time soon.
If it ever does come to light, there's going to be a lot of formal discussions and procedures to work through the matter in trying to reaffirm that this is the right way to go. Mind you, the ECB hasn't conducted such a review on their inflation mandate since 2003.
I still reckon you can interpret the message on two fronts:
"On the one hand, it could be a signal that accommodative and easing monetary policy will be needed for a prolonged period if inflationary pressures aren't what they used to be. But on the other, it's suggestive of a new paradigm in central bank theory to adjust monetary policy based on a lower inflation target - which I reckon may be a positive as the threshold for tightening policy is seen to be lower."
But as one of readers pointed out here, a lower target may not necessarily be a good thing as it leaves little room for flexibility in adjusting policy if sudden deflationary pressures kick in.
