Heavy bias for hawkish ECB thwarts Draghi plans

FX:EURUSD   欧元/美元
According to investors, a clear recovery of the eurozone economy has long convinced them that it's time to begin to tighten the valve on the pipe through which the ECB pumps the economy with cheap money. The growth of the euro in this case began to be reflected in a fairly one-sided analysis by investors of Mario Draghi's speeches, a partial search for hints on the tapering off the QE . While dovish rhetoric thrown some cold water on the markets, but not for long. The president of the ECB repeatedly stated that inflation didn't effectively gain enough momentum to maintain the trajectory comfortable for the economy independently and strongly depends on QE and energy resources. This is clearly visible on the WTI charts and consumer prices in the euro area, where both are moving along the slope since early March. That is, the complication in the oil market with the entry of US oil shale and the forecast of long-term stagnation will not exactly give Draghi confidence in implementing restrictive policies.

Strong euro , as an inflation factor, is also not in the interests of the ECB. Therefore, an increase in divergence with the Fed raising rates, will only be on hand. And accordingly, the pause in the tightening of the Fed, which we are observing now, may become an additional argument for the European regulator to refrain from changing policies at this difficult time.

However, why does Draghi not immediately signal that it is too early to talk about changing rhetoric? Perhaps the attempts of investors to take positions on the euro at the very beginning of the welcomed reversal led to the fact that playing a race, they’s gone too far. Therefore, downgrade in the mood should be conducted gradually. One such move was yesterday's Reuters message, where sources familiar with the situation said that Draghi will not speak about QE in Jackson Hole. Although this same event last time became a platform for informing investors of regulator’s stance on policy easing.

It can not be ruled out that Draghi might need more data. Keep in mind that the regulator maintains stability throughout the region, therefore it is necessary to control the growth of both strong Germany and support weak Greece at the same time. A good pace of improvement of"outsider" countries, (ie, considering them separately) will be the key to predicting the policy of the regulator.

After the buyback, at 1.17, the pair EURUSD again went into decline and it is obvious that it will storm the support levels lying lower. So far, the pressure is restrained by a lull in the dollar in anticipation of the Fed's protocol, and good preliminary data on EU GDP. According to the report, the EU economy added 0.6% in the second quarter. And this is despite a slowdown in inflation from 2% to 1.3%! It is difficult to refrain from the assumption that a global decline in the target inflation rate may be natural.

And briefly on the dollar. It’s definitely pleased with itself after strong retail sales and comments by Dudley. A representative of the Fed stood up for the economy, saying that the third increase is in the plans, but only if the economy does not deviate significantly from the forecasts. Is the current decline in inflation all the same not so critical? The Fed's protocol today will dot all i's.

Arthur Idiatulin, Tickmill Market Watcher.
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This analysis is provided as general market commentary and does not constitute investment advice.
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