The most anticipated event of the last week was the ECB meeting and the subsequent press conference with Mario Draghi. In the present circumstances, when the euro area economy is not particularly in a hurry "to get up from its knees", the possibility of further easing by the regulator is perceived by the market as almost inevitable. The question was only which way the ECB would prefer to go - to expand asset purchases or lower the deposit rate.
In fact, here and proved to be a major surprise, as Draghi said that the regulator is ready to lower rates, and to build up "quantitative easing" (currently, the limit of the program is € 1.1 trillion). It is logical that the Eurodollar reacted to such statements with a spectacular collapse. The final decision will probably be made at the last meeting of the ECB this year (December 3), which may turn out to be a good New Year gift for the traders.
It is worth noting that in the results of the II quarter, Eurozone GDP showed an increase of 0.4%. However, in the current data from Germany, the largest economy of the monetary union certainly does not inspire optimism because of the record fall in exports in the past six years. Last but not least this has to do with the continued drop in demand from China, the trade relations with which account for the exports of the fourth of the euro area.
Accordingly, the efficiency of the measures voiced serious doubt. If, as expected, the ECB will raise the threshold for monthly purchases of assets from the current € 60 billion to € 80 billion, it is unlikely that it will be able to dramatically expand growth in the European economy. This will probably only mitigate the likely return of GDP to negative values, and perhaps a little support to inflation, which again remains around zero.
Another interesting fact is that when, in September of last year the deposit rate was lowered to negative levels -0.2%, Mario Draghi said that it is "the lower limit of the index." However, during this time a number of countries outside the euro zone (example of Denmark was considered in the previous review), lowered its deposit rate to even more negative values, but the effect of these measures has also proved highly controversial.
In general, with a series of programs to save, that is, budget cuts, eurozone countries most seriously hit their domestic demand. Germany always set an example to all with its export-oriented economy. And now, when there are problems with exports and domestic demand is extremely weak, the economy simply has nowhere to grow. And Mario Draghi, who for years insisted that the problems should be solved with active participation of the national governments, again, was right.
If, however, for the euro zone economy the effects of past and future decisions of the ECB still remain uncertain, then it is obvious for the markets. The movement of the ECB to easing policy the Fed plans to raise rates before the end of the year remain in force set a quite clear trend of the further decline in the Eurodollar. If negative data on inflation in the euro area comes out during the week, this trend can get strong acceleration.
RoboForex Analytical Department
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