Will the “long – short” star of 2017 REMAIN valid? – genxfxtrader
The ECB has a problem: if investors continue to buy euros at close range, the monetary stimulus program – the famous QE – no avail.
The ECB ‘s mandate is very clear: it has to maintain price stability in the euro zone and, at least until today, an annual CPI “close to 2%” is what central banks considered stable and desirable.
As we were far below the target, the ECB launched to inject money into the economy, hoping that the stimulus would promote growth and inflation repuntaría.
But these calculations do not take into account the profound economic change that was taking place in the world economy and especially in advanced economies. E – commerce, the rise of alternative energies, electric or hybrid vehicle, robotization and a new labor model where wage bargaining capacity is decreasing, are changing the structure of price formation . Put downward pressure, ie are disinflationary factors.
Nor ECB economists thought that the DollarIt could be weakened as a result of the phenomenon “lowflation” is global. Or hopes that testosterone Trump moved to the economy did not materialize. In fact, US inflation does not increase or only very slightly. And here comes the third mistake: consider that if there is growth there has to be necessarily inflation. Package error, it would not be the first time in history in which an industrial revolution, this time the digital, pulls down prices and boost the economy.
To finish fuss, to Draghi you can not think of anything else to announce the approaching end of the stimulus process. The currency market operators see a weak dollar on the one hand, they see will reduce the supply of euros and tie the other ends. Detect an opportunity to double investment in markets called “long short”, ie, to buy euros and sell dollars. Honey for bees.
Earnings, with a revaluation of the euro by 14% against the dollar so far this year, are spectacular. But the important thing to know if the “long short” of the year is still valid or if an exchange rate of $ 1.20 per euro is the end of the party.
bluntly: if the euro is approaching 1.30 Draghi will see statements saying things like that will not start ” tapering ” until inflation is well anchored and anchored its goal. It will no longer say that we see, because all I get so fed expectations of speculators.
This might be enough. But the market knows the pressure on and could not believe him. In that case he would have to take his rifle and join battle against speculators. The tax cuts Trump would be a great ally.
The final result will depend mostly on economic data, as usual. Whatever you do, if the European economy is really encouraging, the euro will continue to appreciate and the only thing that will make the European Central Bank is to control the rise. But longer term the thing could give an unexpected twist: whatever they say those of “financial repression” , growth is possible without inflation. It will not be the first time that occurs in history and the digital revolution has all the characteristics for a period of growth with low inflation repeat. If the market saw the end happens the same here as in the United States it is normal that a certain balance between the two currencies again.
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