Eurozone is rife with rumors. Fundamental analysis 13.05.14
13.05.2014
Eurozone is rife with rumors. Fundamental analysis 13.05.14
The Euro “bears” received support from an unexpected place - Germany. The Wall Street Journal, citing sources at the Bundesbank, writes about the readiness of the German regulator to support the ECB stimulating, and as early as the next meeting in June. Among other things, we see negative deposit rates, as well as the ECB's purchases of loan portfolios. Apparently, Berlin is also tired of low inflation, which has not yet returned to the ECB’s expected growth trajectory.
Much will now depend on the ECB’s June forecasts for inflation up to 2016. If the return of inflation to the landmark regulator at 2% will be shifted again into the future, then the Bundesbank can be finally given the green light for pumping liquidity into the economy in the euro zone. Germany remains in a position as a deterrent to the policy of the ECB, despite its declared independence.
Not so long ago, Mario Draghi, speaking before the Bundestag officials, even talked about it being unlikely that the European version of QE3 will occur any time soon. Moreover, in every speech he makes he always reserves the possibility of action being taken by the ECB, but only in the case of deterioration of the current situation with inflation. Let me remind you that the fall of the index in March to 0.5% did not become a trigger for easing the policy, because all rushed to attribute the fall to seasonal factors.
In April, inflation rose to 0.7% (of course, on an annualized basis), although more significant growth was expected. Accordingly, if the May inflation will remain at current levels, the predicted "bounce" is not going to happen. In this situation, the ECB will not be able to "sit idly by" as prolonged low inflation could disrupt plans to reduce the debt burden of the euro zone countries, as well as damage the consumer sector.
However, the Bundesbank, according to the same source, is not happy about the idea of buying debt and corporate bonds, as the rates on them are now extremely low. Instead, Berlin can support a reboot of the LTRO to provide cheap loans to banks that will revive lending, simultaneously exerting pressure on inflation. Coupled with a negative deposit rate LTRO can indeed give a significant boost to the economy of the euro area.
The fall of the euro allowed the stops on transactions to translate to a breakeven. On the correction I plan to open the third short in a row. It should be noted that in addition to information leakage from the Bundesbank, the bears got even more enthusiasm from the negative stats – the expectations index for Germany and the euro area as a whole was significantly lower than the predicted values. On Thursday, we expect the preliminary GDP data may also provided the bears with positivity for the continuation of a downward rally and to the joy of European exporters.
RoboForex Analytical Department
The Euro “bears” received support from an unexpected place - Germany. The Wall Street Journal, citing sources at the Bundesbank, writes about the readiness of the German regulator to support the ECB stimulating, and as early as the next meeting in June. Among other things, we see negative deposit rates, as well as the ECB's purchases of loan portfolios. Apparently, Berlin is also tired of low inflation, which has not yet returned to the ECB’s expected growth trajectory.
Much will now depend on the ECB’s June forecasts for inflation up to 2016. If the return of inflation to the landmark regulator at 2% will be shifted again into the future, then the Bundesbank can be finally given the green light for pumping liquidity into the economy in the euro zone. Germany remains in a position as a deterrent to the policy of the ECB, despite its declared independence.
Not so long ago, Mario Draghi, speaking before the Bundestag officials, even talked about it being unlikely that the European version of QE3 will occur any time soon. Moreover, in every speech he makes he always reserves the possibility of action being taken by the ECB, but only in the case of deterioration of the current situation with inflation. Let me remind you that the fall of the index in March to 0.5% did not become a trigger for easing the policy, because all rushed to attribute the fall to seasonal factors.
In April, inflation rose to 0.7% (of course, on an annualized basis), although more significant growth was expected. Accordingly, if the May inflation will remain at current levels, the predicted "bounce" is not going to happen. In this situation, the ECB will not be able to "sit idly by" as prolonged low inflation could disrupt plans to reduce the debt burden of the euro zone countries, as well as damage the consumer sector.
However, the Bundesbank, according to the same source, is not happy about the idea of buying debt and corporate bonds, as the rates on them are now extremely low. Instead, Berlin can support a reboot of the LTRO to provide cheap loans to banks that will revive lending, simultaneously exerting pressure on inflation. Coupled with a negative deposit rate LTRO can indeed give a significant boost to the economy of the euro area.
The fall of the euro allowed the stops on transactions to translate to a breakeven. On the correction I plan to open the third short in a row. It should be noted that in addition to information leakage from the Bundesbank, the bears got even more enthusiasm from the negative stats – the expectations index for Germany and the euro area as a whole was significantly lower than the predicted values. On Thursday, we expect the preliminary GDP data may also provided the bears with positivity for the continuation of a downward rally and to the joy of European exporters.
RoboForex Analytical Department
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