An autumn taper discussion provides fodder to Euro bulls: Angel Commodities Broking

Mr. Prathamesh Mallya (Chief Analyst- Non-Agri Commodities & Currencies, Angel Commodities Broking):

"The President of ECB, Mario Draghi, tried his level best to undermine the markets by not commenting on tapering. He stroked a dovish stance by emphasizing the lack of pickup seen in underlying inflation which is a possible answer for the status quo move. The interest rates were kept unchanged at "0 percent" and the monthly asset purchases were to be done at €60 billion till the end of December'17 or beyond until the ECB achieves its 2 percent inflation target. The reason why the policy committee decided to stay put was the recent riot seen in prices of Euro currency and Euro bond yields post Mario Draghi's Sintra's speech which happened in the June'17 end. He spoke about robust recovery in Euro-zone's economy and seemed quite confident that reflationary pressures were starting to re-emerge making the weakness in inflation temporary. He ended the speech by giving a hint of considering tapering which took the markets especially bonds by storm.

Both EURUSD and Euro 10 year yields surged by more than 3 percent post this event. Now the catch is, for a country that is trying hard to heat up the prices, a surging currency becomes a hindrance. This clearly gives grounds to the policy committee to not even think, forget considering, about clawing back its stimulus program. Infact, the President passed a remark on pledging to extend or even increase debt purchases (need be) if the inflation lumbers below the 2 percent target level till December'17. It seems that very substantial monetary accommodation is still necessary to achieve that target. He also made it very clear to the media and the markets that only when the committee unanimously nod in confidence with respect to the inflation rate will it resort to tapering. He made a loose statement by saying that the officials would discuss possible changes to its bond-buying scheme this autumn which gave markets the fuel to fire. Both EURUSD and EURINR surged by 0.99 percent and 1.15 percent respectively."

Source : Equity Bulls

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