The euro is being pressured from above

January 13, 2015

The main currency pair continues to decline on Tuesday - investors are clearly counting on a full QE from the ECB.

Now it seems that everything depends on whether the European Central Bank can justify the hopes rested upon it and how soon it announces its monetary intentions. Investors are increasingly adding to their market expectations a high-grade and large scale QE - to stimulate the use of all the available fiscal instruments. It is clear that the "semi-QE", that is in place now, does not give absolutely any results.

The rate reduced twice, negative interest rates on ECB deposits and other purchase of bonds is ineffective, as they were introduced very late.

Inflation in the euro area, in addition, in December was at 0.2% y/y, down from the previous step of 0.3 % y/y. Remember how panicked the global market got when the consumer price index in the region "slipped" to 0.7%? Now there is no panic, but there is some kind of consternation, whether it will be worse or the worst thing has already happened?

The statistics released yesterday still plays against the euro: Industrial production in France, Germany and the UK proved weaker than expected, while the deflationary threat is becoming more pronounced.

Tomorrow the ECB should publish the decision to buy bonds at a global level. The market reaction will depend on the volume and type of bonds - everything that will be more modest than expectations will "strike" against the Eurocurrency.

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