Effects of unconventional ECB policy on EURUSD
Prior ECB policy easing has devalued the Euro...I believe it is a good time for a long-term chart update in EURUSD as we dig deeper into the effects of unconventional ECB policy has had on the Euro. It is difficult to ignore the clear law of diminishing returns and implies further rate cuts from the ECB will not devalue the Euro, but instead could lift EURUSD by 5-10%.
Those following in the live room will know we have been tracking a new chapter in USD. The currency weakening impact from QE depends on how much of the securities accumulated by the ECB on its balance sheet are provided by foreign investors. Interestingly enough, if you study the capital flows over the last QE you will notice disproportionate foreign participation. Using BIS for reference https://www.bis.org/publ/qtrpdf/r_qt1903g.pdf, foreign investors are responsible for almost 50% of government bonds which has added to EUR softness.
Since 2015, the foreign holdings of EUR have drastically declined, meaning that foreign accounts have less supply for the ECB, cushioning the downside in Euro. To put simply, any additional rounds of QE are unlikely to have a profound effect on EUR downside. In the case that I am wrong, and the EUR did depreciate massively, then the US will also have incentives to propose further tariffs as a weapon to reduce the competitive advantage the euro area will gain via a weakening Euro.
Highly recommend all to dig deeper into the attached charts "Return of the Euro" and "Aggressive Dollar Devaluation" below for the technical sides in both of the major flows we are covering live in the chatroom. We are still in very attractive territory for Euro longs as we enter into this new phase for USD devaluation.
As always, feel free to jump in with any comments, charts, likes and etc.
Those following in the live room will know we have been tracking a new chapter in USD. The currency weakening impact from QE depends on how much of the securities accumulated by the ECB on its balance sheet are provided by foreign investors. Interestingly enough, if you study the capital flows over the last QE you will notice disproportionate foreign participation. Using BIS for reference https://www.bis.org/publ/qtrpdf/r_qt1903g.pdf, foreign investors are responsible for almost 50% of government bonds which has added to EUR softness.
Since 2015, the foreign holdings of EUR have drastically declined, meaning that foreign accounts have less supply for the ECB, cushioning the downside in Euro. To put simply, any additional rounds of QE are unlikely to have a profound effect on EUR downside. In the case that I am wrong, and the EUR did depreciate massively, then the US will also have incentives to propose further tariffs as a weapon to reduce the competitive advantage the euro area will gain via a weakening Euro.
Highly recommend all to dig deeper into the attached charts "Return of the Euro" and "Aggressive Dollar Devaluation" below for the technical sides in both of the major flows we are covering live in the chatroom. We are still in very attractive territory for Euro longs as we enter into this new phase for USD devaluation.
As always, feel free to jump in with any comments, charts, likes and etc.
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