At the beginning of the week that has just ended, the markets movers was about the news coming from the major European countries.
First of all, attention was directed to Spain, where the government of Madrid rejected the request for independence of Catalonia after the referendum for its autonomy.
On the day Catalan President Puigdemont held his speech in front of the Barcelona parliament, the EUR / USD was around 1,17.
Eurozone industrial production data also contributed to the achievement of this level for euro-dollar currency pair.nEurozone industrial production grew by 1,4% on a monthly basis, while in the previous survey it had increased by 0,3%. Analysts had expected an increase of 0,5%. On an annual basis, however, industrial production in the Eurozone marked a + 3,8%, compared to analysts’ forecasts of + 2,6% and to the previous results to + 3,6%.
Always talking about the Old Continent but of a non-European country, we report the extreme suffering of the pound in this week’s post-Brexit negotiations. The British pound has collapsed both against the euro and against the US dollar due to the difficulties of negotiators of both sides who cannot find a good divorce agreement.
After five rounds, the negotiations on Brexit are at a dead end, which only affects the performance of the British pound. Against the US dollar, the pound lost more than 60% and trade at 1,31, while EUR/GBP is rising by half a percentage point above 0,90.
Meanwhile, some rumors about the future of European Quantitative Easing have emerged from the international press. According to Reuters, the rhythm of purchases should fall between 25 and 40 billion euros a month, compared to the current 60 billion euros. In addition, there should be an extension of QE for another 9 months.
Bloomberg, on the other hand, talked about a cut in Quantitative Easing and therefore a reduction of the purchase program from 60 to 30 billion euros starting from January 2018.
To find out who is right, however, we should wait until the end of October.
In the middle of the week, arrived also the FOMC minutes. The Federal Reserve records do not show any major changes compared to the September press conference. Despite low inflation, interest rates are likely to rise by the end of the year.
Hurricanes will probably affect the economic growth of the very short period, but history shows that natural cataclysms have never been over-impacted in the medium term. The increase in fuel prices could stimulate inflation, which, as mentioned above, remains a concern within the FOMC.
Following such news from the Federal Reserve and the European Central Bank, the euro strengthened and the ratio between euro and dollar rose to 1,1880 in the first morning of Thursday, October 12.
Only exceeding the threshold of 1,19, it can determine the end of the downward trend in the short term and confirm the growing trend over the long term. After that threshold, the EUR / USD ratio may return to the maximum level of August, about 1,20.
However, the real boost will only happen when there will be significant changes in the economic and monetary programs of the two central banks mentioned above.
The ECB will decide in which direction its Quantitative Easing program will go and the Federal Reserve will likely increase its interest rates as anticipated by Janet Yellen in September.