Draghi chatter on the currency sends it lower but is he right?
Back in March 2014 he made comments that around every 10% gain in the currency accounted for knocking off 0.4-0.5% from inflation, and said that the euro had gained 9% from 2012 (to the then 1.3845 level). The low in 2012 was 1.2043
We went further to near 1.40 before he then torpedoed the price with his comments on the ECB acting the next month. Since then we've dropped over 25%
My problem is reconciling Draghi's comments on the currency. He noted the 9% move from 2012 to 2014 but surely his start point should be the 95% move from 0.8230 in 2000 to the 1.60 highs in 2008? And then shouldn't that be relevant to the 35% fall from 1.60 to this years lows? Where are the inflation calculations for that?
EURUSD weekly chart
So even if he's still using the 9% 2012-2014 move as an excuse for why inflation is still lagging, shouldn't we start seeing the benefit from the 25% move from 2014-2015 pretty soon?
Irrespective of the currency, his other comment was on oil, and I've said time and time again that there is no monetary policy that can change the inflation effects from that, save changing policy to lower the currency to make oil a more expensive import.
Maybe I'm missing something in Draghi's meaning but I just can't make the numbers fit his message. I'm open to explanations from the readership
That said and done, it matters not what I think as the market is reacting to his words once again. If there were thoughts from buyers that they could take the price higher, he's given them a good slap round the chops
We have a pretty strong support point under 1.0700 at 1.0665 and a move through there opens the way to the 2015 lows
EURUSD daily chart
1.0700 is becoming a very important level though as we just can't grab a close below it. If we do manage to do so that could be the signal for another shift down
