The euro project is a unique experiment in human history. It is the only time that mankind created a currency without a country.
The eurozone remains a hodgepodge of wildly different cultures, from the tax-evading Greeks to the very stiff and proper Germans. Everyone is ruled by their own individual governments, and yet they share a common monetary policy and the same currency.
That makes Mario Draghi, who is the president of the European Central Bank (ECB), not only the most powerful monetary authority in the region, but also the most powerful official in all of Europe. If for no other reason, because the ECB is the only pan-European institution in the region with broad administrative powers.
The ECB, unlike the Fed, has only one mandate: Price stability. That has made it much more difficult for European authorities to engage in the type of monetary stimulus that the Fed has been doing for the past eight years.
Yet Mr. Draghi has managed to implement a QE (quantitative easing) program of his own, under the supposition that European central bankers have the obligation to fight deflation as well as inflation. Therefore, the ECB is well within its right to assume massive purchases of sovereign bonds in order to lift price levels to the 2% target.
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| The European Central bank has been buying bonds like crazy to pump up the European Union’s economy. But can it keep it up? |
The ECB has been late to the QE game, but nevertheless has taken to it with great abandon. To date, it has bought bonds at a rate of 60-80 billion euros per month. And many analysts expect that when all is said and done, the ECB will have expanded its balance sheet by at least 1 trillion euros.
The key question for you and the market is when will it stop?
The EUR/USD made a massive recovery on Monday, rising almost to 1.0800 after hitting multi-month lows just above the 1.0500 level. For many novices in the market, the move came as a shock and no doubt seemed bewildering given the problems that Europe continues to face.
But currency markets rarely move in a straight line and Monday’s action was just a short squeeze after weeks and weeks of relentless selling. In fact, don’t be surprised if the EUR/USD pushes higher, maybe even all the way towards the psychologically key 1.1000 level after the ECB meeting this Thursday.
The market will be looking for Mr. Draghi to signal some sort of an extension to the QE program and perhaps even an expansion of it. But if he offers nothing of the sort, the currency could fly higher and hit 1.1000 by the end of the week. The reason? The market is still not convinced that the much anticipated “policy divergence” between the Fed and the ECB will take place.
For all the pop in the U.S. yields since Mr. Trump’s election, Fed officials have still not signaled that they are ready to truly normalize monetary policy in 2017 by forging a steady path of rate hikes every three months or so. In fact, there is a small but not inconsequential chance that the Fed will do a “one-and-done” in December and sit on their hands for much of next year much like they did this year.
That’s why Mr. Draghi’s press conference on Thursday will be watched so closely. If he offers no reason to ease further, don’t be surprised if the euro pops higher. Either way, we’ll be watching carefully for any trade opportunities to come. The euro collapse could still be coming, but not just yet.
Happy Trading,
Boris
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That’s not true. Bitcoin is another currency created by mankind without a country.
gold is a currency without a country!
so is bitcoin – then there are many countries without a currency of their own or they have a pseudo currency that is pegged to something else. Gold is not a good currency – try buying or selling something with physical gold money – not many people can trade with you. I once bought a car engine with a gold coin BUT could not buy a lounge suite with same said coin.
Money arises naturally without need of a pathetic nation-state. It is a medium of exchange, nothing more. Nation debauch their currencies; the dollar has lost 95%of value since 1913; that is , since the creation of the Fed. I once created money in a poor Mexican village without realizing it; I simply offered to redeem demand notes; payment to bearer; within months these circulated as money as the villagers trusted me completely!!!!!!!! And I’m Not Janet yellen
Boris, forget about the financial issues in Europe we have enough problems here in the United States. Government debt at near 20 trillion dollars and climbing and the so called unfunded liabilities to the tune of 100 trillion too who knows how many trillions of dollars. A health care system cost only reaping reward to those working in that industry. Teachers on the taxpayer dole collecting salaries of over 200k per year. Oh, I forgot “its for the children”. An over valued stock market to protect retirement investment plans, all while Social Security is in the process of collapsing. Why you ask? Because all surplus funds are being absconded and wasted else where. Precious metals should be skyrocketing but are not, “why”? If currency has no reference in value its basically azz wipe material. Why worry about the debt, let’s just print more currency and pay it off, heck lets give everyone in the country a six figure salary, whats say.
dont forget the 8/10 of a trillion dollars (800 billion dollars) Obama and company took from social security to pay for obamacare subsidies
I find this write up a bit puzzling. The EU is not the only time that mankind created a currency outside of a country. Early US banks printed their own currencies in the early days. It was not a lasting system back then, and I would not expect it to be a lasting system for the euro into the future. The administrative powers of the ECB are limited by the variations in the administrative requirements between the individual soveriegn nations that make up the EU who also utilize the euro. These “soveriegn” nations have differing desires relating to interest rates, exchange rates and capital movement (including capital flight). Does Brussels really administer, or does it merely legislate?
No,Will, Brussels doesn’t “administer or legislate” Brussels only parasite, deceit and push upon us it’s bloody dictate just to execute the orders of the Banksters !
Why you forget what a Rothschild once said: give me the control of money and doesn’t matter the legislation anymore !
What Draghi does accordingly his Master Rothschild and all it is not more or less then the European Ponzi scheme in a perfect fraud and robbery of our rights and work ! Always does ! Do you !?
Get real Mr Boris !
The Euro will survive DESPITE the arrogant elite & BECAUSE the growing aging populations of European countries are terrified that their pensions will devalue 20/30/40% if their national currencies are re-established ..what an end to their days, eh.
The peoples of many European countries distrust their elites, but also suspect that the new leaders of any “newly-liberated” countries would destroy their currencies.
This is the glue that binds together the disparate countries…not belief in a dream, but fear of a nightmare
WHAT A MESS, seems there is no possible solution that will satisfy everyone’s expectations. It is like a family drifting apart that perhaps should never have been thrown together in the first place. A bad marriage that will inevitably result in a painful divorce.
boris you state that the EU wont collapse; yet Larry who works for the same company as you say EU will collapse sometime in mid 2017. I think you 2 need to get together and get your forecasts understood and post what is truly accurate.
Boris,
Just like your rant on Brexit you go off on a subject that you do not understand, The EU is a crooked cabal of dictators who are bankrupting Europe at the same time they enrich themselves, the Euro will be worthless in a few years .