The Euro - walking a tightrope

No fi rework, no noise as expected from the ECB. The press conference was colourless as well however Draghi was a little less dovish. The initial move for the Euro was towards the downside as the decision gives a signal that Draghi is still dovish. The ECB still sees the QE running for its course.

First Published: e-Forex Magazine 75 / Currency Clips / March, 2017

Basically, Mario Draghi is trying to ward off his quantitative easing plan and this has become an uphill battle for him. The reason is simple because it is difficult to write of the positive impact of growing infl ation and growth.

But here is an interesting point which as an investor you should keep in mind. We have two major events coming up which can have some serious impact on the Euro; the elections in Netherland and elections over in France. If any of these anti- euro party wins the election, this would create a lot of trouble for the European Central Bank. Basically, when you have the concept of euro under threat, the last thing you want to do is to create more panic in the market. It is in Draghi’s interest to keep buying more time until we have navigated through all these storms and sailing becomes smoother.

However, it is not an easy task especially when the growth has clearly started to pick up and infl ation has is also knocking on your door. The two elements which the ECB always used as an excuse to keep the QE going.

So it is a tightrope on which Draghi is walking. Having said that, growth is still fragile, rising infl ation is temporary and these are just some of the tools which Draghi has in bag.

Another important factor is the upcoming G20 meeting where President Trump will meet his other peers. It is also an event which must be keeping Draghi to burn the midnight oil. When it comes to Trump, you need to bet the house. How he views the dollar is very important factor. He has called Germany a currency manipulator due to lower euro, and this is something which Draghi needs to keep on this dash board when it comes to any chief decision. You surely do not want to have full blown currency war but the reality is that you can never discount this either.