Draghi Delivers
Draghi showed his prowess at public speaking today. Addressing concerns in the Eurozone and providing solutions for potential problems. I have to admit this guy is good. He seems to address serious problems in the Eurozone with an “everything will be O.K fashion.”
I have witnessed Draghi convince the market with words in the past, despite actions to the contrary by the ECB in the past. I distinctly remember an occasion when it was announced Draghi would be increasing stimulus to the QE program to the tune of €20bn a month, the markets reacted to his reassurances of stability rather than the action of pumping €20bn into an struggling economy.
My opinion is that the Euro is in for a rough year. Three general elections will take place this year. There is the strong possibility a far right party gaining power in one of these elections which would could bring about a referendum. We have witnessed the damage caused to Sterling by the vote to leave the EU. Geert Wilder is ahead in the polls in the Holland (although it will be difficult for him to establish a coalition) and Marine Le Pen the leader of the National Front has a real chance of winning.
Let us also consider Italian bank’s bad loans, now in excess of €360bn due to their lack of a contingency plan. Greek debt, the problem that will not go away and unemployment within the bloc bordering on 18 million.
Short to medium term the pound has potential to fall due to the uncertainty surrounding Brexit. But, my opinion is similar to that of Morgan Stanley analysts.
“The pound is one of the most undervalued currencies in the world and will return to pre-Brexit levels.”
I do not think Sterling’s value will rise quickly, but as trade deals become more apparent I am of the strong opinion the pound will rally.
If I was holding Euros, I would sell now. Moving when GBP/EUR sits in the 1.14s is not a bad move considering what could lie ahead.
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