What is better: bigger and shorter or smaller and longer? European central bank is starting to discuss the further quantitative easing programme course, but the markets seem to have chosen the right option. EUR/USD pair fell to figure 17 base after the release of the minutes of the Governing council September meeting, where there were more questions than answers. Will the regulator buy the assets for €40 billion during 6 months or it will limit QE by €20-25 billion during 9-12 months? The decision will be stated in late October, and meanwhile there is time to speculate about pros and cons of each option.
Larger amount of purchases will allow to finish the cheap money policy until the European Court decides on quantitative easing legality. QE continuing has more advantages; first, it will be easy to buy bonds, suitable for QE; second, ECB will have more time to watch how Euro zone economy will develop, third, euro will have less chances to restore the uptrend, as the idea of interest rates raising will be put off till the end of the next year.
The Governing council expressed real concern about the excessive strengthening of the single European currency, which, at the time of the meeting, was near the psychologically important level of $1.2. However, the opinions of ECB representatives about the causes of Forex situation diverged. A part of them insisted that euro strength is connected with the restoring of Euro zone economy, another part was sure that the reason is weak dollar. Once the macroeconomic situation improved and economic surprise index continued its race, as EUR/USD pair lost more than three figures. After the positive data on business activity, dollar bulls were pleased with the trade deficit reduction up to $42.395 billion. Exports of goods and services has reached its high since December 2014, services export, corrected for inflation, rose up to its historical peak.
Dynamics of economic surprise index
Greenback was supported by moderate “hawkish” comments of the FED representatives. The president of the Fed of Philadelphia, Patrick T. Harker, stated that issue of the Federal Fund Rate raising in December will be followed by FOMC, and the president of the Fed of San-Francisco, John C. Williams was sure that inflation would reach the target of 2% and noted that in such situation it is necessary to continue the cycle of monetary normalization. As a result, the likelihood of the third monetary restriction act has risen up to 88%.
EUR/USD bears momentum is restrained by the expectations of negative data on American employment for September. Consensus forecast suggests that, due to the hurricanes impact, non-farm payrolls growth has slowed down up to 80 thousand, that is half of the monthly average in 2017. Nevertheless, if the actual figure exceeds 100 thousand, this will indicate the economy resistance to natural disasters and encourage dollar bull to be more active.
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