Investors are starting to get nervous. Fundamental analysis for 23.05.2014
23.05.2014
The elections to the European Parliament have started. According to the latest opinion from the 750 mandates about 220 can go to the members of the "anti-European" right-wing parties. In some countries, for example in Greece, parties making up the current majority coalition can gain significantly fewer votes than in the previous elections, which could turn into a new political crisis.
Overall, the increase of nationalist parties can be observed throughout Europe. The National Front in France could soon become the largest party, and the UK Independence Party will significantly strengthen its position after the vote. It turns out that the historical words from Angela Merkel "We need more Europe," in practice turned out completely in reverse.
Recent statistics are also negative: the weak data on GDP dynamics for the first quarter and extremely dubious prospects of a return to growth in the second quarter thicken the clouds over the forthcoming meeting of the ECB in June. If inflation will again not show significant growth, the regulator can go on the offensive, by reducing the key or deposit rate. That expectation of easing policies is what is mainly pushing down the Eurodollar at the moment.
Against this background, volatility returns to the debt market. The sharp increase in interest rates on 10-year Portuguese bonds from 3.5% to 4.1% was revealing. Subsequently, the rate stabilized at 3.8%, but this rally once again demonstrated the fragility of the relative calm in the euro zone. Moreover, the increase, partly restrained due to the anticipation of action by the ECB, was observed in all the bonds of southern European countries.
The concerns of the investors are justified, since the growth of support for populist-antieuropeans risks turning their coming to power as soon as the next national elections. Consequently, the ongoing structural reforms can now be reversed, which would negate all the plans to stabilize the budget deficits and debt levels of troubled euro zone countries.
An additional bonus for the “euro bears” on Friday was the data on the Italian retail sales and the German business climate. Both figures came out to be much worse than expected, which has already resulted in an update to the Eurodollar minimum. During the correction I opened an additional short and now have three deals to sell. In the future I plan to increase the volumes of the positions.
RoboForex Analytical Department
Overall, the increase of nationalist parties can be observed throughout Europe. The National Front in France could soon become the largest party, and the UK Independence Party will significantly strengthen its position after the vote. It turns out that the historical words from Angela Merkel "We need more Europe," in practice turned out completely in reverse.
Recent statistics are also negative: the weak data on GDP dynamics for the first quarter and extremely dubious prospects of a return to growth in the second quarter thicken the clouds over the forthcoming meeting of the ECB in June. If inflation will again not show significant growth, the regulator can go on the offensive, by reducing the key or deposit rate. That expectation of easing policies is what is mainly pushing down the Eurodollar at the moment.
Against this background, volatility returns to the debt market. The sharp increase in interest rates on 10-year Portuguese bonds from 3.5% to 4.1% was revealing. Subsequently, the rate stabilized at 3.8%, but this rally once again demonstrated the fragility of the relative calm in the euro zone. Moreover, the increase, partly restrained due to the anticipation of action by the ECB, was observed in all the bonds of southern European countries.
The concerns of the investors are justified, since the growth of support for populist-antieuropeans risks turning their coming to power as soon as the next national elections. Consequently, the ongoing structural reforms can now be reversed, which would negate all the plans to stabilize the budget deficits and debt levels of troubled euro zone countries.
An additional bonus for the “euro bears” on Friday was the data on the Italian retail sales and the German business climate. Both figures came out to be much worse than expected, which has already resulted in an update to the Eurodollar minimum. During the correction I opened an additional short and now have three deals to sell. In the future I plan to increase the volumes of the positions.
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.