Save from as low as €40 per month Change modify pause
(ARTICLE WRITTEN BY ANDRE CAUCHI, JUNIOR INVESTMENT ADVISOR)
Investors’ attention was redirected to the European Central Bank (ECB) meeting yesterday. They speculated on whether Mario Draghi will hint on tapering of the quantitative easing program (QE) in place, giving the strong economic data we are seeing out of the Europe.
The expectations of the market in relation to the ECB speech has created a level of uncertainty before the meeting (although this was expected and happens before most meetings).
There were some analysts who believed that the ECB will reduce its QE program (from the current €60bln asset purchase program per month) as soon as this autumn. This would be done in a gradual manner following the positive results in boosting the European economy so far this year.
However, during the meeting, the President of the ECB, Mario Draghi did not commit to tapering of the QE program just yet. He confirmed that the program will remain in place till December of this year and extended if necessary.
Despite Draghi not giving an indication of when tapering of the program will start, we continued to see a strengthening of the EURUSD which closed at $1.1631 yesterday evening and is currently trading higher today at $1.1667.
The continued strength in the EURUSD is a sign that the market is confident that the continued improvement in European economic data is enough for Draghi to start tapering the QE program after 2017, even though we did not hear it from the horse’s mouth.
EURUSD
Traders had a cautious stance on the EURUSD currency prior the ECB meeting. The dollar benefitted before the meeting and recovered from a 10 month low.
However, the strength in the dollar was short lived following Draghi’s comments in relation to the current state and robustness of the euro zone. The euro currency escalated quickly above the EURUSD $1.16 level during the session.
The unanimous position taken by the ECB is to not interfere or affect in any way the positive gradual expansion the euro zone areas have been going through.
Inflation
Although the economy in Europe is benefitting from the program initiated by the ECB, the statistics show that the inflation target of 2% will not be reached in 2018 and 2019 since it is expected to register a 1.3% and 1.6% respectively. Therefore if the market expectations are not met, a more bearish result would materialize a triple top formation, where the euro momentum will decline as already happened in the last 2 years.
Conclusion
The market expectations were not met by the ECB, since the decision following the meeting held in Frankfurt, was that the QE will remain unchanged and the current asset purchases will change only in size or time horizon if the need may be.
Draghi explained that the policy makers are still awaiting the inflation to pick up and reflect the economic recovery in Europe.
However, having said this, investors are confident that the stage is set for Draghi to start tapering of the QE program any time after December 2017 due to the strength we are seeing in economic data and earnings season so far.
You are signing up to receive news, updates, general market announcement, articles and product or service marketing. By signing up you are consenting to our privacy policy and can unsubscribe at any time.