Article
Global Markets

Draghi under pressure to loosen Eurozone monetary policy

25 February, 2014 | Posted By: FXTM ForexTimeLtd

The European Central Bank (ECB) President Mario Draghi takes the spotlight this week as the market’s attention turns to Friday’s Consumer Price Index data release for the 18-member Eurozone state. Volatility is expected in the market around Friday’s announcement, especially because January’s reading of 0.7% shocked the market confounding expectations for a rise to 0.9%. Another drop would put severe pressure on Draghi to apply further loosening to monetary policy.

The forecast for the Eurozone is not looking especially strong, especially off the back of last week’s European Economic Sentiment reading which came in at 68.5, much worse than the previous figure of 73.3. This reading is a signal to the market that fewer investors are optimistic about the health of the Eurozone economy than they were last month. In response, we saw EUR/USD immediately drop on this announcement last Tuesday from 1.3724 to 1.3710, although the pair did recover shortly after. The EUR/USD pivot point is now at 1.3738, with resistance levels at 1.3742, 1.3746 and 1.3750; and supports at 1.3734, 1.3730 and 1.3726.

The ECB cut interest rates to a record low of 0.25% in November and has indicated it may take further measures if they are needed at the March 6 meeting. Draghi will undoubtedly be watching Friday’s inflation figure closely as well as the Eurozone unemployment rate for signals as to how to develop the ECB’s monetary policy in the short-to-medium term.

In the US, attention this week is focused on Friday’s Q4 GDP data release, which is an opportunity to gain some insight into whether consumer confidence has grown and also feeds into growth projections for 2014. Some volatility is expected around this announcement because a revision downwards for this data from 3.2% to 2.7% is expected, indicating that growth in 2013 was a lot lower than previously announced. Investors will also be tuning into the testimony of Janet Yellen, Chairwoman of the US Federal Reserve, who will be appearing before the Senate Banking Committee on Thursday. Market participants will be looking to her comments for any indications she is moving away from her previous reassurances that the central bank would keep on reducing its stimulus.

The UK GDP figure is also scheduled to be announced on Wednesday, although there is no expectation that the preliminary figure of 0.7% will be revised. The UK economy continues to show signs of gradual and progressive growth, supported by accommodative monetary policy. Last week’s Minutes from the Bank of England’s Monetary Policy Committee meeting revealed that the Committee voted unanimously in favour of maintaining the interest rate at 0.5% and the stock of asset purchases at £375 billion. The only disappointing news came in the form of the Consumer Price Index data last Tuesday which showed a slight decrease from 1.7% to 1.6%. This initially caused GBP/USD to drop from 1.6685 to 1.6659 before later rebounding. The GBP/USD pivot point is 1.6631, with resistance levels at 1.6635, 1.6639 and 1.6643; and support levels at 1.6627, 1.6623 and 1.6619.

In Japan, investors are starting to doubt the effectiveness of “Abenomics”, Prime Minister Shinzo Abe’s aggressive monetary stimulus policy that is intended to resuscitate the nation’s struggling economy. The market will be closely watching for Thursday’s Consumer Price Index data with inflation expected to remain around the current level of 1.6%, but still well below the 2% level that the Bank of Japan (BoJ) is aiming for. If the economy continues to show little signs of recovery, the BoJ may be forced to ease monetary policy even further in the summer. The USD/JPY pivot point is 102.54 with resistance levels at 102.60, 102.65 and 102.71; and support levels 102.49, 102.43 and 102.38.

What to Watch this Week: Friday’s Eurozone CPI figure is expected to produce the most volatility of the scheduled data releases this week. Should the number be even lower than last month's, the EUR is expected to weaken and thus all EUR pairs, especially EUR/USD should be closely monitored.


Disclaimer: This material should not be construed as containing, investment advice or an investment recommendation or, an offer of or solicitation for any transactions in financial instruments. This material has not been prepared in accordance to legal and regulatory requirements in relation to independent research and is not subject to any prohibition on dealing ahead of its dissemination. Any information relating to past performance of an investment is not a guarantee of or prediction of future performance. The material is for general information only and does not take into account your personal investment objectives or financial situation. ForexTime Ltd makes no representation and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied by an employee of ForexTime Ltd, a third party or otherwise. All expressions of opinion are subject to change without notice. Any opinions made may be personal to the author and may not reflect the opinions of ForexTime Ltd. This communication must not be reproduced or further distributed without prior permission.

Risk Warning: There is a high level of risk involved with trading leveraged products such as forex and CFDs. You should not risk more than you can afford to lose, it is possible that you may lose more than your initial investment. You should not trade unless you fully understand the true extent of your exposure to the risk of loss. When trading, you must always take into consideration your level of experience. If the risks involved seem unclear to you, please seek independent financial advice.

FXTM
ForexTime Ltd (FXTM) is a forex broker founded by Andrey Dashin in December 2012. FXTM provides access to the global currency market and offers trading in forex, precious metals, Share CFDs, ETF CFDs and CFDs on Commodity Futures. Trading is available via MT4 and MT5 platforms with spreads starting from just 0.5 on the Standard MT4 trading platform and from 0 on the ECN.MT4 and ECN.MT5 trading platforms. Bespoke trading support and services are provided based on each client’s needs and ambitions - from novices, to experienced traders and institutional investors. The company is registered as a Cyprus Investment Firm under registration number HE310361 and is licensed by the Cyprus Securities and Exchange Commission (CySEC) under license number 185/12.