So, the crucial occasions of the trading week lag us: now we can summarize the first outcomes by evaluating potential customers and dispositions. The Fed and the European Reserve bank have actually spoken, to some degree surprising the marketplace with the sounded position. In a sort of two-day confrontation, the dollar won after all, having gotten assistance from the Fed. In turn, the European currency looks like an outsider throughout the market – fears of traders were warranted, despite the preliminary positive mood.If you neglect the details and think about the circumstance in general, it can be concluded that the euro/dollar is declining due to the dissociation of the financial policy of the Fed and the ECB. This reality again reminded of itself – while the Fed hinted at an acceleration of rates of rate walking, the European regulator revealed indecision and care. Let me remind you that at the June meeting, ECB members maintained all the criteria of the monetary policy (which is expected) and extended the QE program until completion of this year, while minimizing the volume of possessions redemption by half, that is, up to 15 billion euros (from October to December).
It can not be stated that this decision surprised the marketplaces. Such a circumstance was gone over, however, not among the main ones. Professionals confessed that Draghi would again show his indecision (like lots of members of the ECB) and take a half-hearted decision. True, analysts expected a more substantial reduction in the volume of purchases – as much as 10 billion euros by the end of the year.By the method, the worst situation these days’s conference was that Draghi will hold off the conversation of QE folding for July, enabling the program to be prolonged for an indefinite duration. Therefore, the results of today’s meeting can not be called catastrophic for the euro. Yes, the single currency paired with the dollar is now losing its positions and, most likely, will again evaluate the support level 1.1570 (the bottom line of Bollinger Bands on the daily chart), nevertheless, the occasions of current days are unlikely to “bury” the European currency. There are a number of arguments in favor of this statement.Now the market is trading on feelings, as during one day the Fed shocked with A” hawkish “attitude, and the ECB disappointed with a too soft position. Such a sequence can not be neglected a priori, and in the medium term, will be tough for the bulls of the eur/usd set to seize the initiative. When feelings go away, the market will”keep in mind”some of the nuances that will support the Euro, albeit belatedly.First, the ECB said that the stimulus program is not likely to be extended for the next year. That is, now we have a clear time limit, which the regulator will cross only in an emergency(a substantial downturn in inflation and GDP, increasing unemployment, political uncertainty). If the existing characteristics of financial growth in the eurozone continues, Europe will”bid farewell “to QE on December 31. Secondly, the European Reserve Bank for the very first time in a long period of time began discussing
raising the rate of interest. And although today it is just about the length of time the rate will not be exactly raised (at least till the summer of 2019), traders still have momentary criteria in this matter. This has actually been spoken about in the market in the past, however at the level of reports, guesses and inarticulate comments of regulator members. Now there is a fairly clear series: the completion of QE in December 2018-an increase in the rates of interest in the 2nd half of 2019. Obviously, the above algorithm of actions will be carried out only if inflationary indicators increase. Mario Draghi highlighted this reality in a separate line, stating that the forecast for the rates “is connected to the scenario with inflation. “At the exact same time, he voiced very positive projections. In his view, general inflation is most likely to be in the realm of existing levels before the end of this year, however the basic inflation indication will slowly increase. The head of the ECB also raised the projection for the development of the balanced customer price index– both within the current year and within the next two years.Thus, according to the officials of the European Reserve Bank, in the long term there are all the requirements that the stimulus program will be finished before the end of this year, after which the regulator will stop briefly and start talking about the concern of raising rates. These assumptions are consistent and depend mainly on the development of inflation in the eurozone.If the CPI and other inflation signs show a positive pattern, traders will slowly increase the likelihood of tightening financial policy in 2019, particularly in the light of personnel changes among the ECB leadership. In turn, the Fed took a “hawkish “, but rather vague position on the future potential customers. Jerome Powell enabled a fourfold boost in the rate this year, but at the exact same time confessed that the regulator is approaching a neutral level of rates. The market has typically”grabbed “for the near future, ignoring the “alarming bells”in Powell’s rhetoric. This is a topic for a separate conversation.
In summary, it ought to be noted that the behavior of the eur/usd set now totally represents the existing fundamental background. At the same time, when the pair falls into the location of 1.1570-1.1550, it is essential to be very wary of selling the pair. The European Central Bank has actually taken a very careful position, it has likewise laid the foundation for reinforcing the single currency in the long term.The material has been supplied by InstaForex Business – www.instaforex.com
