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Mario Draghi says goodbye to the ECB. What future awaits the euro?

Mario Draghi says goodbye to the ECB. What future awaits the euro?

created Natalia BojkoSEPTEMBER 27, 2019

Practically every week, in the currency summary, we inform about the state of the situation regarding the trade conflict between the United States and China. Undoubtedly, the last 7 days can be considered a great success in terms of talks between the two countries. A bit of a show for the two largest economies in the world, has stolen Europe, more specifically EBC. Mario Draghi leaves his current position after 8 years of office. How will the Eurozone do?

Poor state of the economy

Last Thursday, Mario Draghi's last press conference took place. The current (yet) head of the ECB ends his eight-year term at the beginning of November. Given all his work for the markets, investors have no reason to complain about growth in indices. The last year was particularly turbulent for the German economy, which after weak data from industry weakened the euro significantly. Some analysts consider it economically unfavorable for Draghi to introduce long-term loans to banks. In the light of negative interest rates, the QE asset purchase program has consequently achieved the intended purpose (stimulating inflation) while it is only of a short-term nature. What Euro Zone does Mario Draghi leave behind? First of all, full of uncertainty,  unstable inflation and fragile economic situation. Given the historical peaks of the indexes, the poor data from industry and the approaching limits of the QE buying program, they still leave many questions about the economic future of the Old Continent. Mario Draghi at the last conference tried to calm investors a bit, saying that the monetary policy pursued by the ECB without specific reforms in the field of fiscal policy will not be able to do much.


Chart EUR / USD, H1 interval. Source: xNUMX XTB xStation

What is the situation on EUR / USD? The last ECB meeting did not bring, as most investors expected, any changes in interest rates. Analyzing edek chart in the last week, the market was particularly active on Thursday after 15: 00 bringing supply movement. Around 1,11016 a small test of this move was formed, continuing 25.10 declines. We are currently at a key level around the 1,10801 price, where the first support tests resulted in a slight reflection in the form of three green spools.

Next week, on Wednesday, there will be important data regarding German CPI inflation on an annual and quarterly basis. Forecasts for the most part do not show major changes, and in the worst case, they predict a decline to 1,0% y / y. From 9: 00 Polish time, on Thursday the series of publications for the third quarter of GDP begins. The first readings will come to the market from Spain, then the EU, and finally after 12: 00 from Italy. The average of published forecasts heralds slight deterioration or readings similar to previous publications.

Agreement will not change much

The topic of trade war just like Brexitu it is already "told" and commented on so that the only positive news in this matter would be the signing of the agreement.  After a statement released by the White House on Friday's US-China telephone conversation, it is known that certain "sections" of the deal have already been established. The positive effect was reflected in the markets, especially on the S & P500 index. The hottest negotiating situation concerns Chinese electronics, where China will try to "reduce" US tariffs to zero. In return, the level of purchases of agricultural commodities from the US would have to double (from the 2017 level) to USD 40-50 billion per year.

Currently, the signing of the agreement seems to be more of a "psychological" rest for investors than the actual impact on the global market situation. The positive tone of the recent talks brought a lot of enthusiasm to the S & P500 index, despite the fact that Friday's conversation did not bring any news. A complete removal of tariffs would give a boost to eastern economies in particular. This scenario is unlikely so far. The American delegation will travel to China on November 3 to finalize the agreement.


Chart USD / JPY, H4 interval. Source: xNUMX XTB xStation

The next Fed meeting on interest rates will have a much greater impact on the market. It promises to be Federal Reserve will decide on another reduction.

Analyzing the technical situation on USD / JPY last week, we were dealing with an upward trend in the correction. Despite testing the 108.479 support level, the price is still above it, bouncing harder on Friday. For now, despite the sideways trend we currently have in the chart, there is a good chance that demand movement will continue. The supply that appeared during the past week was rather effectively extracted from the 40 periodic EMA (red average).

12 December elections

The Brexit topic has become extremely tiring even for the British themselves. Hence, they introduced certain hours on television, free from talks on the subject. Similarly, we at Forex Club will try to "squeeze" it to a minimum and focus more on the pound. From newer reports from last week, it is worth to hook up on preliminary declarations regarding early elections, which would take place on December 12. Moreover, the British are still waiting for an EU order regarding a specific date for the extension of Brexit. Relatively short deadlines proposed by France (until the end of November) had a negative impact on the Friday pound.


Chart GBP / USD, H1 interval. Source: xNUMX XTB xStation

Given the principle of the formation of peaks and holes in a downward trend, the price of 1,27870 should be exceeded by the supply movement to create a lower hole than the current one. The current resistance zone, in the absence of adverse information, located at the 1,28511 level is an interesting place for a possible play for a short time or while keeping it longer (testing the resistance), confirmation in medium and possible breakout (with confirmation) can create a nice opportunity for longi.

Given that pound currency pairs now have macro data from England somewhat nicely somewhere, information about Brexit, Johnson's elections and the agreement will be crucial in creating sentiment on GBP.

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About the Author
Natalia Bojko
Graduate of the Faculty of Economics and Finance, University of Białystok. He has been actively trading on the currency and stock markets since 2016. It assumes that the simplest analyzes bring the best results. Supporter of swing trading. When selecting companies for the portfolio, he is guided by the idea of ​​investing in value. Since 2019, he has held the title of financial analyst. Currently, he is the co-CEO & Founder in the Czech proptrading company SpiceProp. Co-creator of the Podlasie Stock Exchange Academy project (XNUMXrd and XNUMXth edition).