Draghi extends QE: EUR/USD below parity? The benefits for the Eurozone

The economic recovery in Europe advances “moderately, but steadly.” The ECB President Mario Draghi reaffirmed the importance of the Quantitative Easing and announced the possibility that this plan will continue beyond March 2017.

The quantitative easing program of 80 billion euro a month started in 2014 and now it can be extended again to support the economic recovery of the Eurozone: what effects are expected for the European economy and for the Euro-Dollar exchange?

Draghi’s QE support to the euro-area recovery

It took more then seven years, but the Eurozone economy has finally reached pre-crisis level and in this rise, the strong political conducted by Mario Draghi has certainly played a key role: the President of the European Central Bank has reiterated the importance QE in the rehabilitation of the banking sector and then in reviving the credit, as well as in stimulating the economy, toughening the export at first and then fueling inflation by improving the domestic demand.

The economic recovery continues with moderate trend, but steady. But we can not let our guard down.

The benefits of QE on the euro-dollar exchange rate

In May 2014, the euro-dollar exchange rate touched the price of 1.3998, during that year the euro price has relentlessly continued to lose altitude until it touches, in March 2015, the listing of 1.0415. A fall of 25%: a great help for the Eurozone economy and its exports.

Since then, the euro-dollar exchange rate (EUR/USD) has gone through a long side stage, poised in the range between 1.0575 and 1.1450, but the possibility that QE is further extended, despite German protests, could generate a great new bearish phase, bringing the major to the parity. The announcement by the ECB is expected on December 8.

Forex: EUR / USD below parity? Technical analysis

A new descent of the euro-dollar exchange in coming months could bring to the parity between the two currencies, and also below. The long sideways trend of the major, that has lasted more then a year, seems to have ended and a second downward phase would be perfectly in line with the divergence of monetary policy between the US and the Eurozone:

  • In the US, Janet Yellen and the Federal Reserve are preparing to further increase of the interest rate. The decision could take place by the end of 2016 or shortly thereafter, but in any case the US-led line is drawn, the dollars in circulation will decrease and their value tends to rise already.
  • In the Eurozone, Mario Draghi and the ECB continue to provide liquidity in the economic system and, against resistance from the Bundesbank and the German front, the QE was first boosted, then extended and is now being extended again.

schermata-2016-11-20-alle-02-16-29

The long-term trend-line that has supported the price from 2000 until a few days ago was just broken in the course of the last week. The technical level of 1.0575 marks a crucial moment: when broken to the downside, the EUR/USD could really take the race to the level of parity that is not touched by the distant 2002.

The last side stage is presented as a large figure of consolidation that is about to be broken. If the breakout will happen (and the macroeconomic environment is favorable), it could be repeated a descent comparable in size to the one that occurred between 2014 and 2015 and bring the euro-dollar exchange rate even up to the technical levels of 0.8825 and 0.8475. For European exporters, this would be a great news.

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