The single European currency continues to surprise, not bending under the influence of spoken interventions of the ECB and losing previous motorists of development. According to Vice President of the European Reserve Bank Vitor Constancio, the current liftoff of the EUR/USD is not justified from the fundamental viewpoint. The slow characteristics of inflation in December makes us speak about the have to maintain an ultra-soft monetary policy for a long time. The head of the Bank of France, Francois Villeroy de Galhau, revealed issue over the fast strengthening of the euro, and among the main “hawks” of the Governing Council, Ewald Nowotny, stated that the current characteristics of the single European currency creates challenges to accomplishing the HCPI target of 2%.
Thus, the ECB’s words on the possibility of modifying the parameters of the quantitative easing program when it comes to enhancing the eurozone economy’s state need to not to be taken as the motorist of the EUR/USD growth. Even if the president of the Bundesbank, Jens Weidmann, says that QE will last till September, and rates will not be raised earlier than mid-2019, then exactly what is the euro growing at? On the potential decrease in the volume of purchases of properties from EUR30 billion to EUR10-15 billion? It is uncertain that this will take place before inflation methods 1.8%. Yes, oil can support customer costs, nevertheless, when something comparable occurred in the past, Mario Draghi turned investors’ attention on the weak point of core inflation.
Exactly what’s the matter? Why does the marketplace neglect the speeches of the FOMC representatives, calling for 3-4 acts of financial tightening, a boost in the probability of a 3-fold hike in the federal funds rate in 2018 to 55%, strong macroeconomic data on United States inflation, retail sales and industrial production? Repair of the latter, by the way, allows you to depend on the extension of the rally of significant United States stock indices.
Characteristics of the Dow Jones and Industrial Production Index
Source: No Hedge. Maybe the reason lies in the danger of a potential shutdown in the government after January 19? In my opinion, this is not so. At the end of 2017, concerns over the failure of the tax reform to pass Congress has exerted pressure on the dollar, but as quickly as they were resolved, the “bears” for the EUR/USD could not obtain any take advantage of this.
The primary culprit for the existing weak point of the “greenback” is its failure from last year. Positive projections in early 2017 gave way to finish frustration at the end. The USD index lost about 10%, which was not a result of internal data or actions of the Fed, but to the successes of the currencies of other nations. In the end, the actual GDP data turned out to be much better than the quotes, and the Fed raised rates not twice however 3 times. At the moment, the scenario is reversed by 180 degrees, and there is a specific risk that history will duplicate itself: excessive optimism about the intense future of the euro will develop into disappointment.
Technically, much will depend on the capability of the “bears” for the EUR/USD to maintain the level of 1,225. It turns out – the possibility of a correction in the instructions of 1.21 will increase. No – the initiative will pass to the “bulls”, all set to continue the rally in the instructions of 1.244 (161.8% in the pattern AB = CD).
EUR/USD, everyday chart
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