ECB ‘s Flex Can’t Stop the Contagion
Justin Burkhardt | FXFocus.com
Like an infectious disease without a cure, the contagion within Europe widens its grasp…
Rate cuts and policy changes just aren’t enough to counter the reaction of the EU’s bleeding economy. The region has just entered what is the longest recession in its 14 years since the inception of the Euro. For six consecutive quarters now, the Euro Zone has contracted causing even the “elitists” such as France and Germany to begin to falter.
In light of the EU’s struggles, Germany has been able to avoid a moving into a recessionary state, but due to current developments the country's status my shift sooner than later. France, Europe’s second largest economy, has not been so fortunate. The country is now officially in a confirmed recession, with economic contractions for the second consecutive quarter running. This marks the third time since 2008 that France has been in a recession.
“The current global economic backdrop makes a sustained recovery more unlikely. Difficulties in France and disappointing growth figures from China are strewing stones in the path of the Germany economy. Hopes of significantly higher growth could be premature” – China Daily
The European Central Bank cut rates this month to a record low of 0.50 percent. That action alone indicates that the current situation is not by any means improving, and that the ECB is still looking for some way to stimulate the faltering region.
Mario Draghi, head of the ECB, stated that they are ready to act again if necessary. But with benchmark rates already at a half of a basis point, what more can the ECB really do?
Austerity measures, quantitative easing, lowering interest rates… If these actions sound familiar it’s because that road has already been traveled and the end result was just that of prolonging the inevitable.
Despite the ECB’s preparedness to move, the outlook remains bleak. Most economists are anticipating that the status quo will remain unchanged meaning that the fight against the region’s current recession will continue.
"The euro is in danger ... If we don't deal with this danger, then the consequences for us in Europe are incalculable." – German Chancellor Angela Merkel
The Euro has lost traction in the open markets across the board this week as the economic data released was worse than anticipated. Time for fight or flight… some investors will flee the scene while others will look for opportunities to capitalize on these market conditions.
Forward Thinking clients were briefed last week for the bearish activity that played out in the Euro this week. Our objective? Find out what the smart money is doing, and ride the waves that they create. Which is exactly what we have been doing in our live daytrade room this week.
HIGH Impact Indicators On Watch (Economic Calendar)
EUR: Euro Zone Consumer Price Index – Thursday