Today is the most important day for traders who have positions or want to trade the single currency of the eurozone. The president of the ECB, Mr Draghi, will hold his press conference and investors are eager to know what will he say and how this will impact the euro. There will be four prominent pillars in Draghi’s speech today which will make the foundation. Here are those fours pillars
1: Cautiously optimistic
2: Beating the drums of QE’s importance
3: Possibility of shopping list
4:Steer away from Greece
So, how he can be cautiously optimistic? He will be optimistic given the economic data for the eurozone is anchored towards its best level in terms of consumer confidence, IFO and even the credit demand has also improved massively as the appetite for risk is at its best levels. Most recently-yesterday, another medal was given to Mr Draghi by the IMF by upgrading the growth forecast for the eurozone – an affair, which we have not experienced in some long time. But, then caution is very important, because if you look at the broader picture, the recovery story is not even. Germany is the strongest country in the eurozone, Spain next in line and then Italy. France has still occupied the bottom place and this makes the recovery uneven. The unemployment in still at disaster level in Spain, France and Italy although Spanish reforms have started to show positive outcomes.
Mr Draghi will telegraph once again the importance of QE and will remind what benefits it has brought for the eurozone and how badly it was needed. It will be pure justification, not dovish tone, because they do not need to increase this amount for some time, but they do need to keep on justifying to other countries, which were in not so much favour of this QE. Mr Draghi wants to keep Germany on his side, and wether he admits or not, but it is in the ECB’s favour to assure the Bund’s bank that it will not be the German tax payer who will be paying for other’s mistakes.
ECB’s QE has not only broken the back bone of the euro, but it is draining the blood out of bond yields – the safe heaven, and given that more than half of the German debt is trading near enough to zero, and the yield of 2-Year bond have already surpassed the ECB limit of -0.2%, and 10-Year bond is trading dangerously close enough to zero, Mr Draghi may alter this limit, which will enable them to keep buying the quality safe heavens. Alternatively, they can increase their shopping list by adding more countries in their buying list, because currently it is only the four countries which the ECB is interested in and they are Germany, Spain, Italy and France. Another option will be cut the deposit rate but the odds are slim for this.
Mr Draghi may not loose their grip on Greece, given that the country has still not submitted to German wish list. Thus, they may not remove the waiver of accepting the sovereign debt and keep the Greek banks on emergency funding from the ECB. The finance minister of Greece is working hard to negotiate with its lenders and they have deadline to produce to reach this agreement and then the next payment from the ECB can be unleashed. Greece will need to pay nearly over 7 billion of euros by August and it is extremely difficult for them to come up with this amount unless more loans are issued by lenders.
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.