BuffaloReport (Minsk) – Draghi invokes politicians, EUR/USD goes down

EUR/USD continues its downtrend this year as the European Central Bank president Mario Draghi says that the risks of deflation in Eurozone are still tangible. Today in the morning during his interview to German Handelsblatt, the ECB head underlined again the possibility of more instruments to be applied in the beginning of the year.

He invokes politicians to conduct all necessary reforms, decrease tax burden, and to remove all obstacles on the way to Eurozone recovery as soon as possible. However, the main idea was that the ECB is ready to act. The level of inflation is still low, and the long period of stagnation in this field may be very dangerous to the Eurozone economy.

This ECB president’s speech revived fears, that this central bank will act again in a very short period of time, the EUR/USD has renewed its low and right now is trading below 1,21 (at 1,2030 to be exact). The mid and long term outlooks are also negative. EUR may continue to fall against US Dollar in the next few weeks and months.

The reason of the pressure lies not only in today’s interview or in the current monetary policy, conducted by the ECB. Markets are awaiting the FED to raise rates this year (according to the latest forecasts, in the next 6 months, however, we think, it could be done no sooner than in September).

The difference between monetary policies, conducted by the Fed and the ECB was the reason for the last year’s fall of EUR against USD from 1,40 to 1,21 approximately. This tendency may have its extension in the first quarter of 2015.