Reflection: EUR/USD, Tapering.. is ECB crazy or is not?
This post is not intended to be an investment advice or a prediction. It´s simply a look at the current economic situation in the Eurozone based on macroeconomic data and historical behavior.
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Mario Draghi woke up the beast in Sintra (Portugal) with a speech that was interpreted as hawkish. At that time everyone understood the possibility of tapering by the end of 2017. As a result: investors bought euro in a massive way.
At the subsequent meeting of the ECB, Mario Draghi tried to contain the rise of the euro with a dovish speech but finally the pressure of the press brought the magic words and Draghi talked about the possible discussion of tapering in September. As a result: investors bought euro again on a massive way.
The magic word for the next few months is: Tapering!!. Is Draghi hawkish or dovish? and most important... is Europe ready for tapering or even more, for a rise of interest rate?. Let's take a look at the USA in 2014 and compare with Europe:
1. Tapering in the US was announced in 2013 and was subject to a couple of goals: an inflation rate of 2% and an unemployment rate below 6%. Tapering finally began in 2014 after 2 years with an inflation rate consolidating around 2%.
At this moment inflation rate in Europe still cannot go up to 2%. In fact, it has only arrived a couple of times this year. Moreover the price of energy (brent) is on the ground, something that does not help. On the other hand, unemployment rate is above 9%. Far from its previous levels in 2008, before financial crisis.
2. The debt of the eurozone (and several of its countries) is within the world top 15. Would it be convenient to raise interest rate and pay more for that debt immediately?
3. Germany is the strongest economy of Europe and an exporting country. A stronger Euro through a raise of types does not seem the most convenient in the near future.
4. The euro has just broken an active range since 2015 in mid-summer with low trading volumes. This area is also 0.23% fibo of the 2008´s big fall. After 5 consecutive months of climb without a correction.
Is a strong/key resistance like this so easy to break? Apparently it is. Due to a weak dollar involved in a political drama.
It´s true that macroeconomic data are improving in Eurozone but is it enough for tapering this year? Draghi will play its cards and we´ll believe him... or not.
- - - -
Mario Draghi woke up the beast in Sintra (Portugal) with a speech that was interpreted as hawkish. At that time everyone understood the possibility of tapering by the end of 2017. As a result: investors bought euro in a massive way.
At the subsequent meeting of the ECB, Mario Draghi tried to contain the rise of the euro with a dovish speech but finally the pressure of the press brought the magic words and Draghi talked about the possible discussion of tapering in September. As a result: investors bought euro again on a massive way.
The magic word for the next few months is: Tapering!!. Is Draghi hawkish or dovish? and most important... is Europe ready for tapering or even more, for a rise of interest rate?. Let's take a look at the USA in 2014 and compare with Europe:
1. Tapering in the US was announced in 2013 and was subject to a couple of goals: an inflation rate of 2% and an unemployment rate below 6%. Tapering finally began in 2014 after 2 years with an inflation rate consolidating around 2%.
At this moment inflation rate in Europe still cannot go up to 2%. In fact, it has only arrived a couple of times this year. Moreover the price of energy (brent) is on the ground, something that does not help. On the other hand, unemployment rate is above 9%. Far from its previous levels in 2008, before financial crisis.
2. The debt of the eurozone (and several of its countries) is within the world top 15. Would it be convenient to raise interest rate and pay more for that debt immediately?
3. Germany is the strongest economy of Europe and an exporting country. A stronger Euro through a raise of types does not seem the most convenient in the near future.
4. The euro has just broken an active range since 2015 in mid-summer with low trading volumes. This area is also 0.23% fibo of the 2008´s big fall. After 5 consecutive months of climb without a correction.
Is a strong/key resistance like this so easy to break? Apparently it is. Due to a weak dollar involved in a political drama.
It´s true that macroeconomic data are improving in Eurozone but is it enough for tapering this year? Draghi will play its cards and we´ll believe him... or not.
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