EURUSD in light of Macroeconomics and Geopolitics

European Central Bank during last meeting decided to extend the Quantitative Easing program by lowering the EU Banks Deposit Rate down to -0.30% from -0.20% and by postponing the QE expiry towards March 2017.

While the Market was expecting more QE via lower Interest Rates and more monthly purchases above the 60bln as of today, EURUSD sky rocketed by approximately 450 pips from 1.0515 lows to 1.0980’s and European Indices pledge lower as inversed correlated.

While EU Macroeconomic fundamentals are not improving as ECB was estimating, it is most likely the QE program sooner or later will fail to boost the EU inflation towards the 2.0%.

The case is supported while Greece, Spain and Portugal political environment should be at least considered not stable. Greek Left Government Coalition is losing power while has abandoned all pre elections promises and has proceeded with introducing additional austerity measures in line with Troika directions. Most Economists have already been mentioning that the Greek economy cannot sustain any more austerity while it is on the prominence to entirely collapse.

One more case to support the bad political and economic situation within the European Nation is the coming elections in Spain. While most pollsters are forecasting a complex political panorama, it is certain that Spain’s elections coming the 20th of December will be a tough battle between currently PM Mariano Rajoy and his PP party and the rising left wing anti austerity parties.

Portugal political climate is not standing far away from the rest as mentioned above. On the October the 4th, the ruling right-wing Social Democratic Party (PSD) and Democratic and Social Centre-People’s Party (CDS-PP) coalition lost its parliamentary majority just few days later the BE political party to back up the PS party and continue with the austerity program. It seems until today that the coalition is working, yet the political scenery remains fragile.

Worth to mention that Unemployment in the above countries remains high (25.6% for Greece, 22.5% for Spain and 12.4% for Portugal) and should be a matter of time until these countries’ economies collapse while austerity leaves no room for businesses to breathe and citizens to struggle with poverty.

One more event to come in line with the subject is the recent complications as Syrian Refugees were forced to leave their country and seek protection within EU. The scene got even more complicated post recent France terrorist attack which boosted Ms. Marine Le Pen, the leader of the far right to take the poll in the initial round of regional elections past Sunday the 6th of December. Worth to mark that Far Right in Greece is holing strong and currently holds the 3rd place as a political power in the Greek parliament.

Worth to mention as well latest developments with Russia and Turkey post Turks shooting down a Russian jet fighter. It is expected that those developments are already and should continue have an impact at the EU while geographically the tension is close to Greece and Italy.

One more brick in the wall comes with United Kingdom’s referendum that is to question the Europe Union membership by the end of 2017.

I will not go in details over VW’s emissions Scandal, which will affect Germans GDP and export numbers in coming months.

Trying to close the story here before we extend into more details and thus more pages, if we were to make a call today about EU’s political, geopolitical and economic environment one thing is for sure, EU is sailing in unchartered waters.

Europe Union as a whole has some major issues to face and judging from the economic climate, EURUSD even as a funding currency will face many challenges ahead while EU counties start to blow out. Even if FED does not raise interest rates or even worst adopt again a QE program to have the Dollar devaluated while exports shrink, EURUSD should extend heavy below parity within 2016 – 17.

Trade Safe & Good Luck

Spiridon C. Dalietos


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