Inflation is upsetting Mario Draghi. Fundamental analysis for 04.06.2014
04.06.2014
The intrigue around the ECB meeting, scheduled for Thursday, is becoming stronger. Yesterday statistics on May inflation emerged, according to which the indicator slowed to 0.5%. Earlier in March, inflation had already reached the same level, but then the ECB attributed it to seasonal factors and expected a sharp rebound upwards. The subsequent rise in April to 0.7% was seen as the beginning of the growth rate.
However, even at the last meeting, Mario Draghi made some important reservations on possible action by the regulator if inflation continues to remain inexcusably low. And yesterday's data, having shaken the predictions of the ECB, clearly demonstrates the need to at least, reduce the key rate, as well as pumping liquidity into the euro-zone economy in one form or another.
The reduction in European unemployment from 11.8% to 11.7% is also unlikely to be anything significantly positive. The most difficult situation persists in Spain and Greece, where unemployment is staying at 25.1% and 26.5%, respectively. On the other hand, in Germany and Austria the situation with unemployment is rather stable - 5.2% and 4.9%. Such significant variation in figures greatly complicates the situation for the ECB.
It is clear that now that the whole policy of the ECB is, for the most part, reduced to battling the low inflation that threatens to undo the outlined restoration of the euro zone economy. If inflation continues to remain low, there is a significant risk of the problems with the national debt worsening even further. In addition, the mandate of the ECB, unlike the U.S. Federal Reserve, does not directly spell out the duty of maintaining stability in the labour market.
It turns out that the ECB has got all the essential powers from the national Central Banks, but who is responsible for unemployment in the region - has not been identified. If at the upcoming meeting, Mario Draghi moves towards QE in one form or another, it can support a rebound in the labour market. In the case, if all is limited to a reduction in rates and a new portion of rhetoric, unemployment will remain to be "free floating."
I continue to hold a deal to sell because after yesterday's statistics the ECB will just have to take at least some measures, and it will almost certainly lead to the fall of the Eurodollar. Moreover, on Wednesday we expect a block of data on the service PMI of the euro zone countries, and there is a substantial likelihood that the statistics will not be great. Consequently, the minimum can be breached as early as some time during the day.
RoboForex Analytical Department
However, even at the last meeting, Mario Draghi made some important reservations on possible action by the regulator if inflation continues to remain inexcusably low. And yesterday's data, having shaken the predictions of the ECB, clearly demonstrates the need to at least, reduce the key rate, as well as pumping liquidity into the euro-zone economy in one form or another.
The reduction in European unemployment from 11.8% to 11.7% is also unlikely to be anything significantly positive. The most difficult situation persists in Spain and Greece, where unemployment is staying at 25.1% and 26.5%, respectively. On the other hand, in Germany and Austria the situation with unemployment is rather stable - 5.2% and 4.9%. Such significant variation in figures greatly complicates the situation for the ECB.
It is clear that now that the whole policy of the ECB is, for the most part, reduced to battling the low inflation that threatens to undo the outlined restoration of the euro zone economy. If inflation continues to remain low, there is a significant risk of the problems with the national debt worsening even further. In addition, the mandate of the ECB, unlike the U.S. Federal Reserve, does not directly spell out the duty of maintaining stability in the labour market.
It turns out that the ECB has got all the essential powers from the national Central Banks, but who is responsible for unemployment in the region - has not been identified. If at the upcoming meeting, Mario Draghi moves towards QE in one form or another, it can support a rebound in the labour market. In the case, if all is limited to a reduction in rates and a new portion of rhetoric, unemployment will remain to be "free floating."
I continue to hold a deal to sell because after yesterday's statistics the ECB will just have to take at least some measures, and it will almost certainly lead to the fall of the Eurodollar. Moreover, on Wednesday we expect a block of data on the service PMI of the euro zone countries, and there is a substantial likelihood that the statistics will not be great. Consequently, the minimum can be breached as early as some time during the day.
RoboForex Analytical Department
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