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.
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