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Forex pairs in this Article » EUR/USD (Barcelona) - Kit Juckes, Global Head of Currency Strategy at Societe Generale notes that the ECB is faced with disinflation that threatens to turn into proper deflation and has already done so in some parts of the economic area, a lack of credit growth, a booming current account surplus, excess savings, chronic unemployment, a lack of nominal GDP growth relative to debt growth and, last but by no means least, a lack of tools to tackle any of the above.

Key Quotes

“Mario stands in front of deflationary tanks, armed with a pea-shooter. Cut 25bp? Cut 12.5bp? LTRO now, negative deposit rates? Hints and nudges pointing to a rate cut in December are more likely. Either way, it won't be enough.”

“The Euro's strength is a result of the ECB's lack of tools relative to others. Proper QE from the Fed produces sharply contrasting trends in money creation. The ECB isn't allowed to do that.”

“Overt talking down of the yen and policy easing in Japan provide a sharp move in relative Japan/Euro real interest rates. Not in the ECB's mandate. So there's no point blaming Mario that the Euro has gained 25% against the yen and 6% against the dollar in the last year.”

“I am struggling to see how, without the proper tools to change any of this, Mario Draghi can drive EUR/USD much lower. So the risk, after a few days in a tiny 1.3440-1.3540 range, is another break up. But look for nothing at 12.45 and dovish talk at 13:30 GMT....”
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