QE Might Be Just Around The Corner For Euro Area

Currency Analysis,  EUR USD, QE, Euro Area, Draghi, oil prices, mario draghi

In the near future Mario Draghi will have to consider whether to implement QE in early 2015. However, in the past few months the Germany has opposed this action although Mr Draghi has stated that even if there is opposition the ECB will still implement QE. This has come at a time when oil prices have slumped and lower oil prices will continue to lower inflation which could initiate a downward inflationary spiral. The likely outcome of this is that consumers will postpone purchases as items will become cheaper, thereby cutting growth in the process. The ECB has already cut growth and inflation forecasts to 1.0% and 0.7% respectively for next year and this forecast is well below the 2% inflation benchmark it had set. It is important to note that declining inflation caused by the falling oil prices is likely to be temporary. However, lower oil prices will be beneficial for firms that export products that use oil as part of their manufacturing process.

TLRO data will be released this coming Thursday, and the ECB hope this will be better than September’s result, which was a disappointment. If the results are better than expected the ECB will be less likely to implement QE.

Investors are expecting a rate hike in Q2 2015 in light of recent US data which consisted of the non- farm payrolls and the unemployment rate, which is 5.8% and is at a 6-year low. 321,000 jobs were added, a 4-year high, suggesting that the labour market is continuing to tighten. Average hourly earnings are at 0.4% and is continuing to rise which will help push up growth and inflation. Retail sales m/m and unemployment claims are expected to be on forecast this week due to increased earnings and Christmas shopping.


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