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Fundamental image is favorable for the USD
Written by: PaxForex analytics dept - Wednesday, 26 November 2014 0 comments
Late last week, the US Dollar Index has tested significant level of 88.00. Indeed, the USD is in demand as the euro and the British pound lost their recent achievements, which was caused by the words of President of the ECB Mario Draghi, who spoke at the European banking conference in Frankfurt.
He focused on inflation and talked about very low inflation expectations in Europe. This is important because the maintaining price stability in the medium term is a direct responsibility of the ECB.
If inflation forecasts are reduced, the ECB should be motivated to take a more accommodative policy measures. Draghi looks forward steps to quantitative easing (QE), and for the second time in a week he said that the ECB will expand purchases (bonds), if the current policy to raise the inflation will not work.
While the ECB never does bind itself on the policy in advance (or so they say), what Draghi
openly voiced on QE prospects in Frankfurt worthy of attention, as the Bundesbank was against the idea of buying government bonds.
If Draghi will be able to convince the Germans that QE is the only solution to the problems of ECB, the QE may occur in early 2015. This is exactly what the market is laying in the forecasts at the moment, and that is why the euro is under pressure.
The fundamental image is favorable for the USD at the moment. It also suggests that the Dollar Index can strengthen its position above this level of 88.00.
All this also means that the bulls are still in control, they just make a little breather. Since this level was broken, it will open the way to around 90.00 - a key psychological level and a maximum since 2006.
In the case of firm attachment of the index above 88.00, it may herald the next stage of growth of the USD against the EUR and GBP.