ECB Official Considers the Recent Policies Appropriate

Bank of Italy Governor Ignazio Visco said European Central Bank (ECB)‘s decision earlier this month to cut interest rate further below zero and resume bond purchase is appropriate for reviving the ailing economy of the Euro Zone. Currently the biggest issue facing the Euro Zone is the worrying prospect that Germany’s economic recession may continue, as the leading economic indicators, including IFO Business Climate Index (IFO), ZEW Indicator of Economic Sentiment (ZEW) and Purchasing Managers Index (PMI), have been declining for 6 to 9 months.

Germany‘s economy may suffer heavily from tariffs that US president Trump posts on EU-exported automobiles, while the growing likelihood of a no-deal Brexit from Britain also weighs on EU’s economy.

Although ECB slashed interest rate to a historical low, Euro Zone inflation still hasn‘t reached the target 2%. According recently released figures, the overall inflation rate of Euro Zone in August was 1%, unchanged from that of July and the lowest since the end of 2016. With a weak growth in Euro Zone economy, inflation estimation suggests it could take several years before the inflation rate reaches ECB’s target, while further stimulus measures are necessary to prevent the situation from getting worse. The market estimates that ECBs interest rate cut will total 35 basis points by the end of 2020.

EUR/USD Pivot Point: 1.0949-1.0965

S1: 1.0889 R1: 1.1010

S2: 1.0836 R2: 1.1078