Eur/usd - page 134
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Euro zone efforts to boost inflation are full of hot air
Despite investor enthusiasm, economic risks are rising in Europe, as amply illustrated by the recent problems of Portuguese bank Espiritu Santo.
But rather than create growth, boost inflation and weaken the euro, the European Central Bank program announced in early June is likely to have unintended consequences.
The ECB actions have reduced borrowing rates for euro zone members. The falling funding costs removes incentives for reducing debt and undertaking structural reforms. The Italian government, for example, proposes to use the benefit of lower rates, estimated at around 10 billion euro over three years, to increase spending and relax fiscal policy.
Moreover, a weaker euro may not trigger the hoped-for rise in exports. A high proportion of trade is conducted in euro within the euro zone itself, limiting the currency effect. Weak growth in export markets, such as the U.S. and emerging countries, also may limit the benefits.
The U.S., U.K. and Japanese experience suggest that monetary policy may not be able to increase inflation significantly, reflecting the effects of deleveraging by companies, households, banks and governments. The cost of imported products may increase, driving higher inflation. But the erosion of real household incomes may reduce consumption, limiting any pick-up in growth.
The ECB initiatives also do not address the fundamental problems of over-indebtedness and need for structural reforms. Maintenance or increasing debt levels is a curious solution to a problem of too much, not too little debt, which lies at the heart of the European crisis.
In reality, the ECB program is a further tactical bluff in the long European poker game. ECB President Mario Draghi is increasingly reliant on influencing market sentiment to buy time, in the hope that growth, inflation and some structural reforms restore the euro-zone’s fortunes.
Draghi’s July 2012 statement that the ECB would “do whatever it takes” helped stabilize money markets and reduced sovereign borrowing costs without requiring any actual intervention. Draghi has continued to follow the strategy.
Announcing the June initiatives, Draghi told reporters: “Are we finished? The answer is no.” It would be reasonable, based on established practice, to expect the ECB resident to repeat this formulation in the coming months, until circumstances dictate a new message. But the utterances are increasingly reminiscent of the Wizard of Oz: “Make no mistake, I have powers, powers beyond your understanding! Powers to make you quake!”
It is unlikely that the policies in place will result in an immediate return to the required levels of growth. Inflation is likely to remain low. The ECB believes that inflation will rise from current rates (0.5%) to 1.4% in 2016, despite downward revisions of its inflation forecast for the next three years. The pace of structural reforms in individual nations will remain slow, particularly in the face of electoral disquiet and with low borrowing costs reducing pressures for change. The ECB package of low-cost funding is unlikely to have the intended effect on the real economy, though it may assist in keeping bond yields low and stock markets buoyant.
Draghi has acknowledged that almost all of policymakers’ conventional tools have been exhausted. Indeed, the ECB has only one more card left to play — a large-scale program of asset purchases.
But it is not clear that monetary expansion will be effective in stimulating demand. The ECB’s own simulations show that the impact of full-scale quantitative easing on growth and inflation will be limited. The simulations indicated that a QE program of 1 trillion euro per year, roughly 80 billion euro per month, would increase inflation by only 0.2% to 0.8%.
European policymakers and investors have ignored real economy weaknesses, choosing to concentrate on the effect of massive central bank liquidity injections. The strategy has generated spectacular returns. But the balance of risk and return is shifting.
Should growth and inflation not increase significantly and the present policies prove ineffective, Draghi’s bluff is likely to be called. And as Ambrose Bierce knew: “The hardest tumble a man can take is to fall over his own bluff.”
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Typical Monday Consolidation but...,
Typical Monday consolidation but events this week should favor the USD. Key levels cited.
Daily Forex Trading Outlook
i wish everyone a great week
thanks man great week for eur/usd and week of long position good luck guys
i hope this week will be the eur week they have to do something seriously
German Import Price Index 0.2% vs. 0.2% forecast
Germany’s import price index rose in the last quarter, official data showed on Tuesday.
In a report, Destatis said that German Import Price Index rose to a seasonally adjusted 0.2%, from 0.0% in the preceding quarter.
Analysts had expected German Import Price Index to rise to 0.2% in the last quarter.
i hope this week will be the eur week they have to do something seriously
i think the week of eur is over now looking at strong eur from today , tomorrow will be great chance to go long on eur/usd
EUR/USD July 29 – Rangebound Trade Continues
EUR/USD continues to show very little activity on Tuesday, as the pair trades in the mid-1.34 range in the European session, its lowest level since November. German data remains soft, as German Import Prices posted a weak gain of 0.2%. In the US, today’s highlight is CB Consumer Confidence. The markets are expecting another strong showing from the June release.
big day today we will see 1.33 more likely
Spanish flash CPI falls unexpectedly in July
Consumer price inflation in Spain fell into negative territory in July, underlining fears over deflationary pressures in the euro zone’s fourth largest economy, official preliminary data showed on Wednesday.
In a report, Instituto Nacional de Estadistica said that consumer prices fell by a seasonally adjusted 0.3% this month, compared to a 0.1% increase in June. Analysts had expected Spanish inflation to post a gain of 0.2%.
Following the release of the data, the euro was modestly lower against the U.S. dollar, with EUR/USD inching down 0.04% to trade at 1.3404.
Meanwhile, European stock markets were mixed. Spain’s IBEX 35 rose 0.3%, Germany's DAX fell 0.1%, France’s CAC 40 declined 0.45%, the Euro Stoxx 50 shed 0.1%, while London’s FTSE 100 slumped 0.1%.
Eurozone July Economic Sentiment Rises Unexpectedly
Eurozone economic confidence rose unexpectedly in July driven by an improvement in industrial sentiment, survey data revealed Wednesday.
The economic confidence index rose to 102.2 in July from revised 102.1 in June, figures from European Commission showed. Economists had forecast the score to fall to 101.9 from June's originally estimated value of 102.
Industrial confidence rose to -3.8 from -4.3 a month ago. The rise in industry confidence resulted from managers' more optimistic views on expected production and the current level of overall order books, while their assessment of stocks of finished products remained broadly unchanged.
Meanwhile, confidence in services fell to 3.6 from 4.4 a month ago. The decline in services confidence was caused by managers' significantly lower demand expectations and more muted assessments of the past business situation which more than outweighed a more positive stance on past demand.
As initially estimated, consumer sentiment fell to -8.4 from -7.5 in June. Consumer confidence slid owing to markedly more pessimistic assessments of future unemployment and the future general economic situation, which were only partly offset by a moderate improvement in consumers' assessment of their future savings.
Sentiment in construction sector improved to -28.2 from -31.7 in the previous month. The rise in construction confidence was fueled by a marked upward revision of employment expectations and, to a lesser extent, managers' improved assessment of the level of order books.
Another data showed that business confidence dropped slightly to 0.17 in July from 0.21 in June.
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