On Thursday the ECB will meet in Cyprus to discuss the details of its €1.1 trillion stimulus plan.
European Central Bank members will meet to discuss and declare the specifics of the next tranche of quantitative easing; in particular the €60 billion bond buying programme announced in January.
In response the markets plummeted on the euro as investors see the next stage of stimulus easing as a threat to the single currency.
Wednesday saw the euro fall against the U.S dollar from 1.11812 to 1.10779; Thursday saw new 11-year lows at 1.1025 in the Asian morning trading.
Bloomberg reported that ‘Goldman Sachs Group Inc. is forecasting euro parity with the dollar next year.’ With comments from Robin Brooks, chief currency strategist at Goldman Sachs; “The combination of deposit rates negative and QE is a very potent one, so it’s very euro negative. We have in our forecasts a very pronounced euro downswing, which is probably the most dollar-bullish forecast in all of our forecasts. We have the euro going to parity by the end of next year and then through parity to 0.9 by the end of 2017.”
CNBC is citing Greg Gibbs, head of Asia Pacific markets strategy at RBS as saying, "The euro is sliding simply because it has not yet factored in the impact of the quantitative easing that starts next week. The monetary settings are simply not fully priced in yet," he said, noting "the move towards parity may indeed be very fast."
Inflation in the Eurozone has fallen since October 2013’s level of just below 1% and after only a year, the rate fell to -0.2% in December 2014. Place this against Wednesday’s economic data that came in below expectations, though the figures still indicated economic growth at a slow pace, and the positive expectations for the U.S economic figures due out on Friday, and this all adds up to a bearish stance for the euro.
The ECB are due to announce on Thursday the start of the bond buying scheme, which is planned to go ahead within the next two weeks. The aim is to stimulate the Eurozone economy, and with European indices on track to hit new highs, companies are definitely benefitting from the advantageous foreign exchange rates for exports.
The Europe50 has seen a rise of nearly 10% from January 22 when the bond buying scheme was announced; it now stands at 3599, equivalent to 2008 figures.
MT4 Chart: EURUSD falls on ECB stimulus package
MT4 Chart: Europe50 climbs to 2008 levels
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