First Published: 24-Jan-2019
First thing first, Euro area
growth has been facing headwinds for quite some time now. As shown in the table
below, Industrial production declined by 1.7% in December. If that’s not
enough, business surveys are pointing towards tough times ahead. Euro Area
manufacturing PMI fell to a two year low of 51.2 levels and service PMI fell to
a 4 year low of 51.2 levels. Despite this back-drop, ECB has successfully
concluded its massive bond buying programme in December.
|
Indicator
|
Latest Reading
|
|
EURO Manufacturing PMI
|
51.4
|
|
Euro Service PMI
|
51.2
|
|
Ifo Business Climate
|
101
|
|
Industrial Production (M-o-M)
|
-1.70%
|
|
Headline Inflation
|
1.60%
|
German 10 year bond yields
continued to trade near 18 month low of 0.22%. Though, Low German yields can
partly be attributed to global trend and lower crude prices, but it also
underlines tepid economic and inflation outlook in Euro Area.
Amid this backdrop, ECB is
expected to keep its monetary policy stance unchanged but market would be more
concerned about tone of Mario Draghi. It would be interesting to know, how ECB
is accessing current headwind is temporary or they are worried about pro-long
low growth period.
Clearly, there are two choices for Draghi. Either, to be
optimistic and suggest that recent headwinds are temporary or turn dovish on
account slowing global and Euro area growth. As history teaches us, between
dovish and optimistic Draghi there is no choice at all.
Short Term trading opportunity -
Sell EUR/USD at CMP 1.1385 with a stop above 1.1430 and first target of 1.1305
and second target of 1.1265
