Article by ForexTime

Markets participants are used to viewing the ECB as the main player in the fight against weak growth and high unemployment. While cheap money and asset purchases seem a quick and easy fix, high unemployment in the Eurozone and especially in the former crisis countries is to a large extent a structural problem, created by multi countries having different views on the structural balance. Governments, not central banks need to address the underlying problems, mainly the countries in aid programs have taken steps to, leaving Italy and France at risk to fall further behind.

The labor market in the Eurozone continues to stabilize. The headline rate remained steady at 11.5% in August, unchanged from July but only slightly down from the peak of 12.0% in early 2013 and with growth trailing off, the labor market, as a lagging indicator, will feel the new headwinds sooner or later. A weaker Euro does help the situation, but there is definitely a need for the governments to figure out how to drive growth.

Despite a dovish ECB, the Bundesbank seems to be fighting quantitative easing tooth and nail. The Bundesbank president said the ECB asset purchase programs signal a shift towards a philosophy of quantitative easing at the central bank and warned that the ABS purchase program could mean a transfer of risks to taxpayers. Weidmann also said that the risk of a deflationary spiral in the Eurozone is low. His comments highlight once again the growing rift between the Bundesbank and ECB president Draghi.

Despite solid U.S. Employment data, the EUR/USD recaptured the 10-day moving average as momentum accelerates.  The MACD (moving average convergence divergence) index is printing in positive territory at its highest level in the past 6-months.  The next level of target resistance is seen near 1.30, while support is seen near the 10-day moving average at 1.2715.

Article by ForexTime

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