Bad news for the ECB. Fundamental analysis for 20.08.2014
20.08.2014
It seems that there is not much statistics scheduled for Wednesday, but the euro bears still found a reason to continue to reduce the currency pair. July data on the German PPI index (reflects producer prices) showed a decline of 0.1%, which actually confirms the previously published weak statistics on inflation in Germany and the euro area as a whole. Not very good news for the ECB.
The fact is, the plans for the summer rebound in inflation have failed. In spring Mario Draghi regularly assured the public that no stimulus is required, inflation would soon start a gradual increase to the target regulator level of 2%. Certainly not, the rate continued to fall and the ECB was forced to lower interest rates, but this did not lead to an increase in inflation, it only restrained the indicator from an even more significant drop.
Meanwhile, in Paris, under the disapproving exclamations from Brussels, they are still going adopt a package of incentives, including a reduction in a number of taxes. In recent quarters, the French economy showed no growth, but by some miracle, it was able to resist a reduction in the II quarter. On the other hand, the statistics may still be revised in a negative direction, which would be the first step towards a full-fledged recession.
However, if the French do not go for a new wave of spending cuts, in addition to the 50 billion euro package already agreed with Brussels over the next three years, it would be the third time that the goal to bring the budget deficit below the European norm of 3% of GDP will be disrupted. Accordingly, the probable direct conflict with the European Commission, which now insist on the fulfilment of the obligations of Paris to achieve the goal in 2015.
Here it is worth recalling that the incumbent Socialist Francois Hollande was able to win the election by promising to stop excessive spending cuts. Hollande did not implement any radical reforms, and now there is a tendency of a reduction in the competitiveness of the economy of the Fifth Republic. The polls show a serious decline in his ratings, so any sort of compromise with Brussels is hardly possible.
Late in the evening minutes of the last meeting of the FOMC will be published. As everything is clear with the end of QE, the interest is only on a more specific guidance on the possible increase in rates before the expected market timing (mid-2015). However, it is unlikely we'll read about something revolutionary in the minutes and therefore the current trend is also unlikely to be scrapped, but I still continue to move the stops with the market.
RoboForex Analytical Department
The fact is, the plans for the summer rebound in inflation have failed. In spring Mario Draghi regularly assured the public that no stimulus is required, inflation would soon start a gradual increase to the target regulator level of 2%. Certainly not, the rate continued to fall and the ECB was forced to lower interest rates, but this did not lead to an increase in inflation, it only restrained the indicator from an even more significant drop.
Meanwhile, in Paris, under the disapproving exclamations from Brussels, they are still going adopt a package of incentives, including a reduction in a number of taxes. In recent quarters, the French economy showed no growth, but by some miracle, it was able to resist a reduction in the II quarter. On the other hand, the statistics may still be revised in a negative direction, which would be the first step towards a full-fledged recession.
However, if the French do not go for a new wave of spending cuts, in addition to the 50 billion euro package already agreed with Brussels over the next three years, it would be the third time that the goal to bring the budget deficit below the European norm of 3% of GDP will be disrupted. Accordingly, the probable direct conflict with the European Commission, which now insist on the fulfilment of the obligations of Paris to achieve the goal in 2015.
Here it is worth recalling that the incumbent Socialist Francois Hollande was able to win the election by promising to stop excessive spending cuts. Hollande did not implement any radical reforms, and now there is a tendency of a reduction in the competitiveness of the economy of the Fifth Republic. The polls show a serious decline in his ratings, so any sort of compromise with Brussels is hardly possible.
Late in the evening minutes of the last meeting of the FOMC will be published. As everything is clear with the end of QE, the interest is only on a more specific guidance on the possible increase in rates before the expected market timing (mid-2015). However, it is unlikely we'll read about something revolutionary in the minutes and therefore the current trend is also unlikely to be scrapped, but I still continue to move the stops with the market.
RoboForex Analytical Department
Attention!
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.