ECB follows in the footsteps of the Fed. Fundamental analysis for 17.09.2014

17.09.2014
Positivity came from where it was not expected. Data on the August inflation in the euro area has been revised from 0.3% to 0.4%, which slightly eased the pressure on the ECB, which keeps getting blamed for its failure of interventions. Earlier, the ECB has revised its own inflation forecast for this year from 0.7% to 0.6%, and has adopted a number of stimulus measures and cut its key interest rate.

Significant is also the fact that the market almost did not react to this slight improvement in statistics on inflation, since the overall picture of the economy is still clearly not conducive to the growth of the latter. The current situation is simply forcing the ECB to keep rates low, and various mechanisms to pump up the economy with liquidity. However, as in the case of the American QE, there is a risk of becoming dependent on cheap money.

The Federal Reserve lowered interest rates to the current minimum level back in 2008, and the terms of its increasing are regularly moved. Only the latest, relatively positive labour market data, suggests the possibility of a rate hike, though nobody can say for sure whether the economy will be ready for the increase in the cost of money. That's why Janet Yellen’s comments on this topic are so careful and tied to current statistics.

According to the results of August, the index for the number of new jobs came out weak, at 142k. However, almost every year the August data is subsequently revised for the better. Consequently, the results of today's FOMC meeting may again be blurred - the prospects for raising rates is likely to once again get tied in with current statistics, while having avoided exactly what the statistics need to be.

However, if from the protocol the phrase "significant time period "of low interest rates will be removed (and we remember that earlier Janet Yellen has noted that six months - is in the sense of the word a significant amount of time), then the dollar will receive very strong support. In other words, the meeting can show how fast the vectors of the ECB and the Fed will diverge, and this is precisely what determines the current trend of the Eurodollar.




Overall, I continue to sell the Eurodollar. In the short term the correction may continue, but overall still able to make a couple more new lows. The referendum in Scotland will have an indirect impact on the euro area. If the majority of votes is gained by the supporters of independence, the fermentation could begin in continental Europe, where the first candidate to gain sovereignty is Spanish Catalonia.
 
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