7 Apr 2014
The Euro has many downside paths to chose from - FXStreet
FXStreet (London) - Alena Afanseva, FXStreet Analyst comments that despite leaving everything unchanged, the ECB managed to spook investors still.
Key Quotes
“Draghi made every effort to push the euro lower by listing all possible ways to stimulate still weak economy growth. However, is it really the question of economic recovery, or more the fear of deflationary pressures?”
“To understand the core arguments, we need to look at the fundamentals. In order to see the current economic picture, we won’t take into consideration the traditional GDP numbers due to the lagging nature of the indicator. We’d better use the core and periphery PMIs for growth, and CPI/PPI for inflation since the start of the year.”
“First, we can see,the appreciating euro really had its impact on German economy. The export oriented nature of the largest European economy is sensitive to the exchange rate of national currency, as the rise of the euromakes the goods more expensive, and less competitive on the world market.”
“Second, the periphery shows the rising momentum. We saw the absolute German dominance just last year, and even the second largest economy of the region – France – teetered on the brink of recession. And now we can see the recovery process in manufacturing sector of Spain,France, and probably Italy, and usually this is the area where the first stage of recovery in the region originates. We already can see some positive spill-over effect in the service sector, so probably the second stage is coming soon.”
“And finally, the third. The disinflation process is developing, and probably the scheduled for this week CPI data out of Germany, and the EMU will only prove the trend.”
“To summarize, while the ECB is really concerned by the currently low price pressure, it sees the recovery on the path, and thus is not in a rush to introduce additional stimulus. However, it realizes the risk of further euro appreciation for the Germany export, and steps up with verbal interventions. Thus, we expect the 1.3760-1.38 area to limit the upside for EUR/USD medium term, and additional evidence of lower price pressure may trigger another wave of sell-off.”
Key Quotes
“Draghi made every effort to push the euro lower by listing all possible ways to stimulate still weak economy growth. However, is it really the question of economic recovery, or more the fear of deflationary pressures?”
“To understand the core arguments, we need to look at the fundamentals. In order to see the current economic picture, we won’t take into consideration the traditional GDP numbers due to the lagging nature of the indicator. We’d better use the core and periphery PMIs for growth, and CPI/PPI for inflation since the start of the year.”
“First, we can see,the appreciating euro really had its impact on German economy. The export oriented nature of the largest European economy is sensitive to the exchange rate of national currency, as the rise of the euromakes the goods more expensive, and less competitive on the world market.”
“Second, the periphery shows the rising momentum. We saw the absolute German dominance just last year, and even the second largest economy of the region – France – teetered on the brink of recession. And now we can see the recovery process in manufacturing sector of Spain,France, and probably Italy, and usually this is the area where the first stage of recovery in the region originates. We already can see some positive spill-over effect in the service sector, so probably the second stage is coming soon.”
“And finally, the third. The disinflation process is developing, and probably the scheduled for this week CPI data out of Germany, and the EMU will only prove the trend.”
“To summarize, while the ECB is really concerned by the currently low price pressure, it sees the recovery on the path, and thus is not in a rush to introduce additional stimulus. However, it realizes the risk of further euro appreciation for the Germany export, and steps up with verbal interventions. Thus, we expect the 1.3760-1.38 area to limit the upside for EUR/USD medium term, and additional evidence of lower price pressure may trigger another wave of sell-off.”