European markets are trading lower this morning ahead of the most important data which is due later today. Yes, it is the CPI data for the eurozone, which could determine the path of quantitative easing program in the region. The question which many traders are asking today is, what should be that number which could push the ECB to trigger the full blown QE. Could it be the 0.2%? Well, if the final number does fall as low as this, it will be extremely difficult for Mr Draghi to defend his position for not doing what the Euro zone really wants. The number as low as 0.2% is not going to let Mr Draghi use the excuse that he needs to see the impact of the TLTROs.
German finance minister has already pointed out that the ECB is running out of options to stimulate the growth in the eurozone, however given that the CPI data in Germany has matched the forecast and the unemployment has not fallen too much, you can certainly expect a lot of resistance from Germany when it comes to full blown QE. The German finance minister also said that he agreed the cabinet shuffle in France however the question which stands is, if he is going to back Mr Hollande’s comments, which he delivered yesterday. Mr Hollande is certainly in favour of more stimulus and wants more weakness in the euro. How weak he wants the euro? We certainly do not know that, but if the ECB does trigger full quantitative easing it could put a lot of selling pressure for the euro which is what perhaps Mr Hollande is pointing out.
Geopolitical tensions are on the forefront once again as Ukraine has accused Russian troops operating in its territory. Both countries are in this conflict for many months and any increase in tensions between them is causing a sell off in the equity market and a push up for safe heaven- gold. Given the recent activity in the past 24 hours, we may see further sanctions on Russia, but if Europe is going to join the US again, it is difficult to say, because winter is on our door step and this gives a lot more leverage to Russia who supplies gas to major European countries.
Disclosure & Disclaimer: The above is for informational purposes only and NOT to be construed as specific trading advice. responsibility for trade decisions is solely with the reader.
By Naeem Aslam