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Home / Analytics / Forex analysis & forecasts / Forex Fundamental analysis / A bet on an interest rate. Fundamental analysis for 21.10.2015
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A bet on an interest rate. Fundamental analysis for 21.10.2015

On Thursday, the European Central Bank will hold a regular meeting, where the agenda will again be the issue of stimulating growth in the Eurozone. A distinctive feature of the current crisis was the lack of a rapid economic recovery that was punctually observed earlier. Instead, macroeconomic reports showed sluggish growth of no more than in most countries in the euro area and 1%. In other words, the recession flowed smoothly into stagnation.

The lowering of the interest rate, a favorite of the central bank, proved effective in combating the recession, but giving an impetus to the economy - is somehow not working. Consequently, regulators have resorted to so-called "unconventional" methods of stimulation. The undeniable leadership in this "race" is held, of course, by the American Federal Reserve, which in three rounds of so-called "quantitative easing" has expanded its balance sheet to an unimaginable $ 4.5 trillion.

Just for comparison - in 2000, the Fed's balance sheet stood at $ 500 million. Also, Central banks are with mixed success trying to use the instrument of deposit rates, namely the reduction of the latter to a negative level. Even last year, the ECB has set this rate at around -0.20%. The idea was that for the banks it would not be beneficial "to park" money in the accounts of the ECB and they will become more active in the development of lending, which would be a welcome stimulus for growth.

In some way, coupled with the ongoing ECB asset purchases, it gave a positive effect and after nearly three years the credit drawdown has returned to growth, though only slightly. However, inflation is still "floundering" at almost zero, and in some countries of the Eurozone altogether gone to "minus". Another interesting thing here is the experience of the Danish Central Bank, which, among other supportive measures lowered the deposit rate to a record low of -0.75% (Denmark is not part of the Eurozone, it uses the Danish krone).

However, the final rate for bank customers did not become negative, and in the absence of any significant return on deposits, the population still for the most part prefers to increase savings (both in currency and in shares), or to invest in real estate. It turns out that in a crisis, and "obscure" prospects for preserving jobs, achieving growth in consumer activity is not a trivial task, especially for the ECB, which has 19 euro-zone countries under its wing.

Last week the EUR/USD pair traded flatly. Certainly, on Thursday Mario Draghi will speak again (what else can he do) of the incentive programs of the ECB and that could push the pair to further decrease. At the moment I went into the first shortstop in the euro, as on the current news background the pair could reach new lows before September, but the future direction will depend on the decisions of the two regulators - the ECB and the Fed.
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