Draghi delivered more than the market initially expected, and promised less than what he can actually do. As in 2012, when he put OTM on the table along with the “whatever it takesâ€, the ECB President offered QE as a tribute to market players. The difference this time is that market did not buy it.
Initially, the rate cuts and the announcement of longer term refinancing operations (TLTROs) looked pretty EUR negative and everything bears were waiting for. He even stated that “we aren't finished here" clearly indicating QE is on the table. The problem is that printing money to buy assets may not be as easy materialized as he hinted. Besides, the Central Bank may want to wait some time before using such option, and asset how the latest battery of measures works.
So, with QE still far from the earth, and despite early week news showed inflation step back to 0.5% yearly basis and PMI readings gave signs of contraction, bulls came back like a menace afterwards, sending EUR/USD towards a fresh 2 week highs. US employment figures released early Friday did not help in clarifying the picture, mostly in line with expectations.
So what’s next from here? A couple things are sure from the fundamental side: the US will stick to its plan and Europe won’t make any new move in the next few months, so from that front, there’s nothing to expect until autumn. Investors will start from now on the slow and tedious process of analyzing day by day data for at least 2 months to start pricing in what the ECB may do up next and if it will be forced to actually set up QE.
Next week will start with a European holiday on Monday, but won’t miss entertainment: key fundamental data will come in the form of employment, with monthly readings in Australia and the United Kingdom, both expected to show improved readings, and therefore give a lift to the local currencies.
Inflation in several European economies and the US will take center stage by the ends of the week, all of them meant to be intraday spikes of volatility. Risk is higher for the EUR in these matters if readings miss expectations or drop to new lows: latest recovery may not reverse, but buyers will have a hard time to pressure the common currency higher.
In Asia, New Zealand and Japan Central Banks will announce their latest policies, none expected to bring news. More important, the week will be fulfilled with Chinese headlines that will be the main market drivers for regional currencies. Be aware, the IMF has revised growth to the downside lowering their forecast for 2015 to 7% and economist at the World Bank, expect a 7.5% growth: disappointing number over these upcoming days may fuel negative sentiment and pressure the most AUD and NZD.
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