Sunday, 18 October 2009

Signs of weakness

The Euro-zone continues to show signs of weakness and the lowest level of activity since record keeping began in 1986 underlines the region’s troubles. As factories continue to slash employees as they try and cut costs amidst falling output, we may see the worst recession in 60 years continue to deepen. The ECB is starting to finally talk of taking aggressive measures to curb the downturn with influential committee member Axel Weber talking quantitative easing and further rate cuts yesterday. The head of the Bundesbank said that the central bank should focus its non-standard efforts at banks instead of capital markets as is the case with the Fed and BoE. He would also argue for the use of a rate cut to battle potential deflationary pressures but warned that cutting below 1% could discourage interbank lending and lead to additional problems. Therefore, expectations are that the ECB will announce quantitative easing measures at their next policy meeting with a rate cut at the subsequent gathering. Having fallen below the 100-Day SMA a test of the 50-Day SMA at 1.3035 seems highly likely for the EUR/USD.

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