Inflation defies the ECB. Fundamental analysis for 29.08.2014
29.08.2014
Statistics in the last few days just do not give the Eurodollar a chance to go into a meaningful correction. Inflation slowed to 0.3%, which further increases the pressure on the ECB. Earlier, speaking at a symposium in Kansas City Fed, Mario Draghi hinted at the possibility of launching stimulus measures in the event of a further fall in inflation. The potential to reduce the key rate has been exhausted; therefore, the only option that remains is to launch QE.
Moreover, despite the reduction in deposit rates to negative levels, the banks are in no hurry to increase lending. The volume of loans continues a steady decline since July 2012. However, whether there will be further policy easing at the meeting next week - remains an open question. According to recent reports, the ECB has started consultations on the scheme of possible purchases of securities, but the final decision is still pending.
Optionally, Mario Draghi can point to a rise in core inflation to 0.9%. However, this figure does not take into account the dynamics of prices for food and energy (as well as a number of other products with volatile pricing). Certain worry is brought out by the decline in inflation to -0.5% in Spain, which was the second negative month in a row. Therefore, if no action is taken now, in September, the data can become even worse.
The unemployment situation, which in Italy rose again to the level of 12.6%, is not pleasing. In general, for the euro area, last month’s rate remained at the level of 11.5%, but with this set of statistics it is difficult to speak about any restoration. It is becoming increasingly clear that without the intervention of the ECB, the monetary union is heading straight for a new recession, and the longer Mario Draghi "drags out" with the launch of QE, the more expensive the cost of the program will be when it is launched.
Meanwhile, the U.S. statistics please the eye. New data on GDP in the second quarter came out better than before, at 4.2%. In addition, good dynamics were shown by an increase of unfinished transactions in the real estate market. Add to that the continuing increase in consumer confidence, and the recovery of the American economy is becoming increasingly evident, which allows the Fed to openly talk about the imminent rate increase.
If we compare the negative statistics of the euro zone and a possible further easing of the ECB with the positive dynamics of the States and the likely increase in the rate by the Fed next year, the euro bulls do not have resources even for a serious correction. That is why I continue to hold my deal to sell – and the evening statistics on the United States, generally promise to be positive.
RoboForex Analytical Department
Moreover, despite the reduction in deposit rates to negative levels, the banks are in no hurry to increase lending. The volume of loans continues a steady decline since July 2012. However, whether there will be further policy easing at the meeting next week - remains an open question. According to recent reports, the ECB has started consultations on the scheme of possible purchases of securities, but the final decision is still pending.
Optionally, Mario Draghi can point to a rise in core inflation to 0.9%. However, this figure does not take into account the dynamics of prices for food and energy (as well as a number of other products with volatile pricing). Certain worry is brought out by the decline in inflation to -0.5% in Spain, which was the second negative month in a row. Therefore, if no action is taken now, in September, the data can become even worse.
The unemployment situation, which in Italy rose again to the level of 12.6%, is not pleasing. In general, for the euro area, last month’s rate remained at the level of 11.5%, but with this set of statistics it is difficult to speak about any restoration. It is becoming increasingly clear that without the intervention of the ECB, the monetary union is heading straight for a new recession, and the longer Mario Draghi "drags out" with the launch of QE, the more expensive the cost of the program will be when it is launched.
Meanwhile, the U.S. statistics please the eye. New data on GDP in the second quarter came out better than before, at 4.2%. In addition, good dynamics were shown by an increase of unfinished transactions in the real estate market. Add to that the continuing increase in consumer confidence, and the recovery of the American economy is becoming increasingly evident, which allows the Fed to openly talk about the imminent rate increase.
If we compare the negative statistics of the euro zone and a possible further easing of the ECB with the positive dynamics of the States and the likely increase in the rate by the Fed next year, the euro bulls do not have resources even for a serious correction. That is why I continue to hold my deal to sell – and the evening statistics on the United States, generally promise to be positive.
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.