European Central Bank President Mario Draghi set the scene for further stimulus in two weeks’ time, saying the institution will do what’s necessary to reach its inflation goal rapidly. The euro fell.

?“If we decide that the current trajectory of our policy is not sufficient to achieve that objective, we will do what we must to raise inflation as quickly as possible,” Draghi said in a speech in Frankfurt on Friday. “In making our assessment of the risks to price stability, we will not ignore the fact that inflation has already been low for some time.”

Draghi’s comments underline the ECB’s concern that the inflation rate in the 19-nation euro area, currently 0.1 percent, will slip further from its target of just under 2 percent amid a high degree of economic slack and slumping oil prices. Policy makers are weighing the need for an expansion to the 1.1 trillion-euro ($1.2 trillion) quantitative-easing program that started in March, or measures such as taking the deposit rate further below zero.

Eoin Treacy's view

A point we have made repeatedly is that despite the fact the ECB has taken on a number of additional duties it has only one core mandate and that is to adhere to its inflation target. The bank has substantial leeway in how it decides to achieve that goal when statistics are so far away from their target. We can expect more purchases of sovereign bonds, corporate bonds and the ECB now has an even greater incentive to stimulate the collateralised debt markets in order to reanimate the credit markets. 

The Euro gave up yesterday’s bounce and the one-month progression of lower rally highs remains in place as its approaches the region of the March and April lows. 

The Euro Stoxx Index bounced this week from the region of the 200-day MA and a sustained move below 325 would be required to question medium-term scope for continued higher to lateral ranging.