Draghi “Put” in place
Developments this week have only strengthened our opinion that in themedium-term EUR will continue to depreciate. The pace of deflation inthe euro-area has only increased despite the ECBs radical feat of negativeinterest rates. July headline inflation in the euro area fell to 0.4% from0.5%, which extends the downwards trend since October 2011. On thegrowth side, GDP failed to expand in Q2 coming in at 0.0%. Economies ofItaly and Germany contracted while France came in at 0.0%. In a twist offate the engine of growth in Europe was saved by performance inperiphery (yet numbers were distorted by a ultra-weak Q1). Forwardlooking indicators are not more encouraging as Euro-area composite PMIdeclined to 52.8 from 55.7 in July. While still above the 50 threshold,drops in national PMI reads indicated that the further weakness should beexpected. In a negative loop the weaker growth will only increase thepace of disinflation.
Read the full report: FX Research