An additional trump up the ECB’s sleeve. Fundamental analysis for 11.06.2014
11.06.2014
The Eurodollar’s unhurried decline continues, and because no important macroeconomic news have been published, the market continues to win back the easing policy of the ECB. However, the market is still trading at almost the same levels as before the meeting of the regulator, having played only a short-term bullish rebound. Overall, however, the current situation is unlikely to return to the old euro highs.
For example, one of the pillars of the European currency growth was investment in riskier bonds of southern European countries. In a situation where the increased risk is combined with a good yield, investors wishing to earn are always possible to find. Even the situation with the write-off of deposits in Cyprus and the restructuring is Greece did not radically change anything. Another thing is when the risk remains the same, and the yield falls.
Consequently, investment flows will be reduced, and it can also lay the foundation for the upcoming downward trend of the currency pair. Another bearish driver is certainly the possibility of the ECB starting purchases of so-called packages of bank loans. If direct bond purchases, as the Fed does, are regarded as inappropriate with the ECB, then an additional impetus to lending is likely positive.
It is likely that Mario Draghi will lean on the results of the first renewed LTRO and the negative deposit rate. As mentioned earlier, the effectiveness of these measures is not completely unique, but if the money will still not reach the small and medium businesses, the ECB could go "on the other end," and start buying the loans issued earlier, providing banks with additional liquidity.
The further reports on inflation will also be interesting. If any significant growth does not happen (and it is a very likely scenario), then Mario Draghi will be forced to continue to take actions. Still, the struggle with excessive interest rates on Eurobonds was somewhat easier, as markets reacted to the statements of the ECB rather quickly. In the case with inflation, immediate effects are not expected.
The fall in the Eurodollar allowed to put an overall stop on both shorts on a break-even zone. In this coming Thursday we expect relatively strong data on U.S. retail and appeals for unemployment benefits. If statistics are released at least at the expected level (retail growth of 0.5% and the number of applications in the area of 305k), then the Eurodollar will continue to decline.
RoboForex Analytical Department
For example, one of the pillars of the European currency growth was investment in riskier bonds of southern European countries. In a situation where the increased risk is combined with a good yield, investors wishing to earn are always possible to find. Even the situation with the write-off of deposits in Cyprus and the restructuring is Greece did not radically change anything. Another thing is when the risk remains the same, and the yield falls.
Consequently, investment flows will be reduced, and it can also lay the foundation for the upcoming downward trend of the currency pair. Another bearish driver is certainly the possibility of the ECB starting purchases of so-called packages of bank loans. If direct bond purchases, as the Fed does, are regarded as inappropriate with the ECB, then an additional impetus to lending is likely positive.
It is likely that Mario Draghi will lean on the results of the first renewed LTRO and the negative deposit rate. As mentioned earlier, the effectiveness of these measures is not completely unique, but if the money will still not reach the small and medium businesses, the ECB could go "on the other end," and start buying the loans issued earlier, providing banks with additional liquidity.
The further reports on inflation will also be interesting. If any significant growth does not happen (and it is a very likely scenario), then Mario Draghi will be forced to continue to take actions. Still, the struggle with excessive interest rates on Eurobonds was somewhat easier, as markets reacted to the statements of the ECB rather quickly. In the case with inflation, immediate effects are not expected.
The fall in the Eurodollar allowed to put an overall stop on both shorts on a break-even zone. In this coming Thursday we expect relatively strong data on U.S. retail and appeals for unemployment benefits. If statistics are released at least at the expected level (retail growth of 0.5% and the number of applications in the area of 305k), then the Eurodollar will continue to decline.
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.