Article by AlgosysFx
Disagreements within the 17-nation Euro area had undermined the future of the European Union, as the stand-off on European Central Bank support for Italian and Spanish debt hardened. A psychological dissolution of Europe was said to stem out from the tensions that have accompanied the Euro Zone in the past years. The signs of a severe
malfunctioning in the market for government bonds in the Euro region along with the continuance of extraordinarily high costs of its members in financing their debts had resulted the European currency to plunge by 46 pips versus its American counterpart in last Friday’s exchanges.
However, as investors and politicians conitnue to grapple with the significance of comments on sovereign debt purchases by European Central Bank President Mario Draghi last week, the EURUSD pair is once again expected to volatility. The Sentix Investor Confidence is also deemed to deepen to a negative reading at -30.8 points in August from -29.6 points in July.
Though Spain and Italy are likely to have to formally request a resumption of the bank’s bond buying, as they rallied the following day as investors concluded that ECB action would occur, albeit on an unknown future date. The ECB did not restart its bond purchases this week, as widely expected, but pointed to a more important and constructive shift in its approach to managing the crisis. If the arrangement sketched out is fully implemented, the ECB will provide an effective liquidity backstop, enabling sovereigns to retain access to markets for a large portion of their funding needs.
Economists furtehr stated that not only did the ECB not take any steps backward, but it took decisive steps forward to correct the functioning of monetary policy transmission, and therefore of the stability of the single currency. In effect, Draghi’s plans to reactivate the ECB’s bond purchase program is expected to persist to generat some critical comment in Germany. The ability to address the issues of price stability that is massively threatened hence sees the immense of the EURUSD pair.
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