Analysis and Opinion »

Euro Consolidates in Oversold Territory

David Becker
Share on StockTwits
Published on
www.iforex.com
Euro Consolidates in Oversold Territory

The Euro continues to trade at the bottom end of its current range consolidating its recent losses as recent data suggests the ECB might still leave the door open to a full-blown quantitative easing program. The risk of Q3 GDP printing in negative territory along with soft inflation figures makes a bond purchase program a likely potential. With the RSI on the EURUSD printing in oversold territory there is a risk of an oversold bounce on the currency pair.

The ECB monthly report leaves door to QE open, by saying that the council is unanimously committed to use further unconventional measures if necessary. The editorial was as usual a close repeat of Draghi’s introductory statement last week following the ECB meeting , and highlighted downside risks to the growth outlook as further sanctions against Russia are likely to impact the economy.

At the same time though the report also said that the ECB’s staff projections come with upside risks to both growth and inflation forecasts, as they don’t take into account the impact of the June package of monetary policy measures. ECB officials Wednesday already dampened speculation that the September measures are the first step towards fully blown QE while intensifying verbal pressure on governments to push ahead with structural reforms.

The German IfW institute sees risk of negative Q3 GDP, which would mean Germany would officially fall back into recession. The Kiel based economic research institute sees overall GDP growth now at 1.4% this year, rising to 1.9% next year. It expects the ECB to keep rates on hold until the end of next year. German August HICP inflation was confirmed at 0.8% year over year, with price unchanged over the month from July. The national CPI rate was also confirmed at 0.8% year over year. German inflation remains above the Eurozone average, which contributes to the rebalancing process in the Eurozone, but headline rates are considerably below the ECB’s definition of price stability.

Share on StockTwits