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eurozone Archives | London Trading Group

European Central Bank vs Federal Reserve

27th October 2015 by | Trader's Desk | No Comments

YellenAndDraghi
Two of the largest economies are facing the biggest decisions of 2015, one preparing to ease monetary policy further, one preparing to tighten monetary policy, but what is the final factor and who will react?

The European Central Bank’s Mario Draghi in his press conference has almost guaranteed a second wave of stimulus for the Euro area in December of this year. December is also the next potential meeting that Fed Chair Yellen could raise interest rates in the US for the first time since 2006. We’ve known for a while, 2 of the world’s largest central banks are pulling monetary policy in opposing directions, however acting in the same month could send EURUSD to a new low.

December, historically a low volatility month, could potentially have the 2 biggest policy changing decisions of 2015 to end the year with a bang for the various financial markets.

A summary of what we know

  • Low Oil prices and EURUSD trading around 1.1700 (high of 6month range) counteracts the European Central Bank’s stimulus program
  • Pressure and volatility surrounding China and the already strong dollar has delayed the Fed hiking already

What’s happened recently?

  • After the dovish September FED meeting, EURUSD traded near the high of its 6month range, threatening European inflation making exports more expensive.
  • After ECB QE2 announcement, EURUSD traded to a 2 month low, making the dollar stronger and could influence the Fed’s thinking on monetary policy to delay further.
  • Global equities have continued to rally, oil prices have dropped to below $50 a barrel.

What are the possible outcomes?

  1. The Fed hike in December
  2. The Fed don’t hike in 2015, due to a strong dollar, push back forecasts, sending EURUSD higher, forcing the ECB to act.
  3. ECB ease further in December
  4. ECB cap euro strength after a Fed hike by cutting the deposit rate further
  5. The continued rally in global equity markets gives the Fed a cover to hike rates

eurVSusd
The outcome either way will be a split in transatlantic policy or a united extension of “easy money”.

EURUSD currently trading around 1.1050, with a latest Fed meeting schedule for released tomorrow at 6:00pm UK time.

 
 


 



Is the European Central Bank QE Working?

13th October 2015 by | News | No Comments

Mario Draghi

European Central Bank QE Program

Current appreciation in EUR/USD and continued weakness in Oil prices are battling against the ECB’s bond buying program, creating pressure on the ECB’s Mario Draghi to “do more” in order to boost the Eurozone recovery.
The next ECB press conference is scheduled to take place October 22nd, since the September meeting, Mario Draghi and other ECB governing council members have reiterated their willingness to expand QE in an attempt to stimulate the economy further, however EURUSD trades near the high of its range around 1.1350

Will we see parity?

The EURUSD QE decline which saw levels as low as 1.0463 had banks lowering forecasts to below parity, however the past 6 months range between 1.05 and 1.15 has reduced the majority of year end forecasts around 1.08 which would continue to battle against the current stimulus program and doesn’t include any further action from the ECB.

What can they do?

Mario Draghi is running out of options, in the build up to the initial release of the QE program, it was the “talk” that started the decline of the euro which enabled the European Central Bank QE to effectively purchase government bonds. We could see a similar tactic deployed again by the ECB in the October meeting, talking the Euro exchange rate down by continuing to warn “further action” through expansion and extending the current QE stimulus.