It has been little more than two months, European Central Bank (ECB) started its massive € 1.1 trillion asset purchase program and market participants are already talking taper.
We have been warning against such talks as of now and last night ECB president Mario Draghi at press conference in International Monetary Fund (IMF) shrugged of any possibility of tapering the asset purchase program even slightly and reiterated ECB’s determination to continue with the purchase to full and final meaning at least till September 2016.
Euro didn’t pay much heed to the commentary trading close to its recent high around 1.14 against dollar and might keep doing so. Euro will be good sell when dollar come back alive again, probably somewhere around 1.19-1.21.
Why should EUR/USD go up if ECB to keep purchasing?
- Euro is one leg of the pair. Too much speculative capital has flown in and out of either of the leg. With US losing growth momentum this year and rise in bond yields across Euro zone leading this pair to sharp recovery. Naturally Euro is up about 900 pips from bottom against dollar. Rise has not been that spectacular compared to other pairs like Pound, Franc.
Why no pint of talking taper?
- In recent times European inflation has sharply jumped back, however that is partially due to lower base effect. By historical norms inflation is still very low. German HICP grew only by 0.3% in April and be assured ECB will keep pumping unless inflation reached close to but below 2%.
The material has been provided by InstaForex Company – www.instaforex.com