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Hello traders,
This thread is devoted to daily market digest from Tickmill team. Let's stay tuned with latest market events together!
Our latest note:
Will Draghi´s speech kill the momentum?
Acknowledging the economic success of the Eurozone while holding back the rally of the common currency – a problem that is increasingly becoming unsolvable for the ECB. Investors are waiting for confirmation of their bullish expectations from Draghi, and they are bracing for the regulator’s meeting quite confidently – the pair EUR/USD resolutely surpassed the level of 1.24 on Thursday. It seems that the market forces the ECB to disclose details of the restraining measures and in order to not cause volatility in the markets, Mario Draghi will probably choose neutral rhetoric, which, if not reduce the Euro, will at least place bar for further growth.
The weak Euro is the only simple yet effective tool for boosting inflation, which is currently at ECB’s disposal. Capital investments (it is useful to recall high economic sentiment in the Euro area) and the increase in export orders are the only solid causes for the output rebound, while consumption remains depressed. Production and consumer inflation are a good reflection of this situation:
It is obvious that the strengthening of Euro will slash profits of European companies in Euros while also hitting the competitiveness of European goods on the international market. This can slow the recovery of GDP, worsening economic sentiment in the business environment, and also jeopardize the large-scale incentive program conducted in the post-crisis years. Until the consumer inflation will not give clear signals to the growth, weak Euro is critically important for the growth of the Eurozone economy, therefore, the ECB will try its best to prevent the buildup of long positions in the national currency. In the relative pace of recovery, some countries in the Eurozone, for example, Germany, are ahead of the US, so capital flows will seek the Old World, reinforced by speculative rates on the growth of the Euro. In this situation, Draghi just has to take a wait-and-see attitude, repeating that the amount of asset buying will remain unchanged while using verbal interventions, indicating that strengthening of the Euro may impede economic growth. If Draghi does not say so, investors will not give up their plans to move the capital to the European market.
However, in general, until recently, consumer inflation has been quite indifferent to the strengthening of the European currency. However, its resilience relative to the exchange rate factor is applicable only to the leading countries of the bloc, such as Germany, while this may suppress growth in the economies of weaker participants. The need to take care of the stability of growth in the entire block is the reason why the ECB looks as cautious as possible in its position.
This thread is devoted to daily market digest from Tickmill team. Let's stay tuned with latest market events together!
Our latest note:
Will Draghi´s speech kill the momentum?
Acknowledging the economic success of the Eurozone while holding back the rally of the common currency – a problem that is increasingly becoming unsolvable for the ECB. Investors are waiting for confirmation of their bullish expectations from Draghi, and they are bracing for the regulator’s meeting quite confidently – the pair EUR/USD resolutely surpassed the level of 1.24 on Thursday. It seems that the market forces the ECB to disclose details of the restraining measures and in order to not cause volatility in the markets, Mario Draghi will probably choose neutral rhetoric, which, if not reduce the Euro, will at least place bar for further growth.
The weak Euro is the only simple yet effective tool for boosting inflation, which is currently at ECB’s disposal. Capital investments (it is useful to recall high economic sentiment in the Euro area) and the increase in export orders are the only solid causes for the output rebound, while consumption remains depressed. Production and consumer inflation are a good reflection of this situation:
It is obvious that the strengthening of Euro will slash profits of European companies in Euros while also hitting the competitiveness of European goods on the international market. This can slow the recovery of GDP, worsening economic sentiment in the business environment, and also jeopardize the large-scale incentive program conducted in the post-crisis years. Until the consumer inflation will not give clear signals to the growth, weak Euro is critically important for the growth of the Eurozone economy, therefore, the ECB will try its best to prevent the buildup of long positions in the national currency. In the relative pace of recovery, some countries in the Eurozone, for example, Germany, are ahead of the US, so capital flows will seek the Old World, reinforced by speculative rates on the growth of the Euro. In this situation, Draghi just has to take a wait-and-see attitude, repeating that the amount of asset buying will remain unchanged while using verbal interventions, indicating that strengthening of the Euro may impede economic growth. If Draghi does not say so, investors will not give up their plans to move the capital to the European market.
However, in general, until recently, consumer inflation has been quite indifferent to the strengthening of the European currency. However, its resilience relative to the exchange rate factor is applicable only to the leading countries of the bloc, such as Germany, while this may suppress growth in the economies of weaker participants. The need to take care of the stability of growth in the entire block is the reason why the ECB looks as cautious as possible in its position.