The latest ECB monetary policy statement and press conference took place yesterday in Frankfurt. Mario Draghi, ECB president, was upbeat. No surprises there, he normally is. He was assisted by the inflation report the day before, which indicated that prices are heading upward, which is what his Quantitative Easing is designed to achieve. Yesterday too, employment figures for the Euro zone showed an increase. Bond yields, particularly for German bunds, are rising. There is even a strong sense in the market that the Greek question is on the cusp of being resolved in a sustainable manner.
All of this is positive for the Euro, and the Single Currency did not disappoint, building nicely during and after the press conference on the lift it had already experienced against the US dollar on Tuesday.
What can rain on the Euro’s parade?
So what can rain on the Euro’s parade? Quite a lot, actually. For a start, the same QE that has resulted in a rise in inflation is destined to last at least until September of 2016, and might even be increased. In the meantime, the US monetary authorities are resolute in their intention that core interest rates Stateside will start to rise, probably at the end of this year. ADP figures for US payrolls, released yesterday just 15 minutes before Mr. Draghi began to speak, indicated 201k new jobs for the month of April and support this view.
The confluence of rate rise prospects in the US with the continuation of Eurozone QE alone will bring the EURUSD pair down, especially when the US rate increases come clearly onto the radar of the market. The recent growth in inflation and employment in the Eurozone could, in the clear light of day, be regarded as marginal, or at the very best no more than ‘green shoots’. And the apparently imminent Greek resolution could easily turn around and disappoint, as it has done so often in the past.
Be careful out there.