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What will the ECB do to save the region's economy (we expect corrective movements in EUR/USD and USD/JPY pairs)
The single European currency remains under heavy pressure in anticipation of a final ECB decision on monetary policy. An important negative factor for it is still the expectation of a certain surprise on the prospects for the monetary policy of the regulator.
So what could be the "surprise" from the ECB and how can it affect the single currency rate?
There are several opinions on the market about what the Central Bank can take to support the region's economy. Some investors believe that the slowdown in the growth of the Chinese economy, coupled with US trade sanctions against Europe and the Brexit factor, caused a significant slowdown in the growth of the European economy. In our opinion, in addition to these really important reasons, there is another one that is forgotten. These are the consequences of the crisis of 2008–09, from which, by and large, it is not only Europe but the United States has not recovered either. This problem has been stretching for 10 years now and has simply been drowned before but it has not been solved by massive measures of stimulating economies.
The economies of Europe and the United States have not improved their health. Damping up the crisis with unprecedented support measures, they were never resolved. As for the trade wars, they just showed up this problem with new force.
In fact, observing the current state of affairs in large Europe as a whole or in the Eurozone, we can say that they repeat the negative scenario of the Japanese economy in particular, which have fallen into the deflationary pit in the 90s but still practically not that I could get out.
In this position, the ECB became hostage to its previous actions. He will have nothing left to do, how to lower interest rates deeper and deeper into negative territory and again "flood" the financial system with money. Despite these actions, we believe that it is unlikely to radically change the situation. The world economy is on the verge of a new financial crisis and the first signals of which have already begun to emerge more and more and which is only aggravated by the US selfish policy.
We believe that the minimum that can be done tomorrow by ECB is to report the level of interest rates may be lowered. Immediately, the maximum decision is on both rates and new incentive measures. In our opinion, the regulator will stop at the first option in the current situation as it wants to see the Fed's decision on the monetary policy, which will be made next week.
We believe that any of the above options will lead to a further fall in the euro. It can only be stopped by a radical decision on the Federal Reserve rates but we will already know what it will be next week.
Forecast of the day:
The EUR/USD pair remains under pressure in anticipation of the ECB monetary policy meeting. The pair may adjust upwards to 1.1170. If she keeps below this mark, there is a chance that it will continue to fall to 1.1120.
The USD/JPY pair is trading below 108.15. We believe that it can be adjusted to the level of 107.60 in the wake of waiting for the outcome of the Fed meeting on interest rates.
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