Indecisive ECB. Fundamental analysis for 26.11.2014
26.11.2014
Recent statistics confirmed the ever widening gap between the American and European economy. It became known yesterday that preliminary data indicated the growth of the US in the III quarter by 3.9%, well above market expectations. The German economy was able to add only 0.1%, and the continued reduction of the Italian retail sector for the fifth month clearly reflects the absence of any recovery.
Accordingly, the pressure on the ECB is becoming stronger. It should be noted that all of the recent actions of the regulator were made with a significant delay when more substantial measures were required. All of this is similar to how if a patient, who is required to take strong antibiotics, would be treated with vitamins and herbs by the doctor. And the longer the assignment of the right medicine is drawn out, the greater the likelihood of even greater complications.
Exactly the same thing is happening with the euro area. While the ECB were slow with reducing rates and otherwise pushed the brakes on the launch of the mechanism of asset purchases, the economy month by month "went to the bottom." As a result, before the recession there are only a few tenths of a percent and, surprisingly, the monetary union is still not falling into the recession largely because of the comforting rates on the bond market, which allowed the peripheral countries to return to weak growth. However, if the slowdown in the major economies will continue, it will be hardly possible for the rest of the country to remain on the sidelines.
And, according to sources from the FT, the ECB plans to consider expanding its asset purchase program until the beginning of next year. Let me remind you that all of the last weeks there was an active rumour on the markets that in case of a negative review in December of the ECB's forecasts for the next year (which is very likely) a build up of purchases may be declared, since their current volume will be insufficient to stabilize the situation in the economy.
There and one more thing. If the ECB will still "wait until the end", and the economy still in a recession, then the size of the program purchases will have to increase even more. Since this version of events is quite probable, then the effect on the foreign exchange market, it will have a significant impact. Consequently, the movement of the market to further weakening of the euro in the coming months will certainly continue.
I still hold the transactions for sale on Eurodollar despite the current correction. Potential drivers for the market decline are still available. Since Thanksgiving Day is coming to the US, it is difficult to expect a significant activity in the market. But if on Thursday we will see negative data on European inflation, at least a weak downward movement is possible.
RoboForex Analytical Department
Accordingly, the pressure on the ECB is becoming stronger. It should be noted that all of the recent actions of the regulator were made with a significant delay when more substantial measures were required. All of this is similar to how if a patient, who is required to take strong antibiotics, would be treated with vitamins and herbs by the doctor. And the longer the assignment of the right medicine is drawn out, the greater the likelihood of even greater complications.
Exactly the same thing is happening with the euro area. While the ECB were slow with reducing rates and otherwise pushed the brakes on the launch of the mechanism of asset purchases, the economy month by month "went to the bottom." As a result, before the recession there are only a few tenths of a percent and, surprisingly, the monetary union is still not falling into the recession largely because of the comforting rates on the bond market, which allowed the peripheral countries to return to weak growth. However, if the slowdown in the major economies will continue, it will be hardly possible for the rest of the country to remain on the sidelines.
And, according to sources from the FT, the ECB plans to consider expanding its asset purchase program until the beginning of next year. Let me remind you that all of the last weeks there was an active rumour on the markets that in case of a negative review in December of the ECB's forecasts for the next year (which is very likely) a build up of purchases may be declared, since their current volume will be insufficient to stabilize the situation in the economy.
There and one more thing. If the ECB will still "wait until the end", and the economy still in a recession, then the size of the program purchases will have to increase even more. Since this version of events is quite probable, then the effect on the foreign exchange market, it will have a significant impact. Consequently, the movement of the market to further weakening of the euro in the coming months will certainly continue.
I still hold the transactions for sale on Eurodollar despite the current correction. Potential drivers for the market decline are still available. Since Thanksgiving Day is coming to the US, it is difficult to expect a significant activity in the market. But if on Thursday we will see negative data on European inflation, at least a weak downward movement is possible.
RoboForex Analytical Department
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Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex bears no responsibility for trading results based on trading recommendations described in these analytical reviews.