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ECB Remains Unwavering Towards Stimulus

Daily Analysis - 02/04/2017

Expectations of an Earlier Exit From Asset Purchases Dashed After Comments and Data

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Although global investors were eagerly awaiting the possibility that the European Central Bank would announce an earlier end to stimulus in the coming months, pushing the Euro higher, the Central Bank pledged to keep purchases intact with no tightening expected until the expiration of ongoing easing measures.

Last Week


Following a rapid series of gains in the Euro in response to investor speculation of an earlier end to stimulus, the European Central Bank suggested that the latest Governing Council remarks were misinterpreted.  According to sources, the ECB intends to maintain its easing measures while indicating that no tightening will occur until asset purchases have concluded.  With preliminary Euro Area inflation data suggesting a pullback in price growth during March, any policy changes are unlikely before the second half of the year.  Apart from mainland Europe, the UK took the next step towards leaving the European Union after Prime Minister Theresa May officially triggered Article 50 of Brexit, paving the way for negotiations to begin. Shifting eastwards, Japanese unemployment managed to reach a 22-year low, however, annualized household spending remains weak, keeping a lid on inflation. The headline national figure slipped to 0.30% growth in February while core inflation edged modestly higher to 0.20%.

To cap off the week, US GDP growth for the fourth quarter was revised higher to 2.10%. Aggregate 2016 growth came in at 1.60%, marking the slowest expansion since 2011, denting optimism despite the pickup in PCE inflation which will help the Federal Reserve’s case for raising interest rates.

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The Week Ahead


The main events for the sessions ahead revolves around unemployment, manufacturing, and Central Bank announcements.  Kicking off with labor fundamentals, the Euro Area is set to report its aggregate unemployment rate, with forecasts calling for a modest dip to 9.50% in February from 9.60% a month earlier.  The United States will also be announcing the jobless rate alongside nonfarm payrolls due on Friday, with the former expected to remain on hold at 4.70%.  Apart from the labor data, the Federal Reserve will be releasing the FOMC Minutes from the March decision, potentially providing valuable clues about the stances of voting members.

The Reserve Bank of Australia will be announcing its own decision, with consensus calling for no change to policy as interest rates stay stable at 1.50%.  It will be important to watch for any mention of exchange rates which could raise the specter of additional policy loosening later in the year.  Apart from these other fundamental announcements, manufacturing will be in focus with PMI data scheduled from Europe and North America.  Although manufacturing is expected to remain in expansionary territory globally, the pace of growth in Spain, Italy, and the US is expected to moderate while French, German, and Euro Area manufacturing PMI activity remains on hold.

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