Everyone has now read about the large swings seen last week on everything from commodity prices to currency following the Swiss National Bank changing their central policy. They did this as a direct result of a weakening euro and the concerns coming out of Brussels about their own future policy changes. This event is now just 48 hours away! Many think that they they will be introduction a form of QE into the market but not everyone is aware as to why it is so important and could make such a big difference.
QE is the creating of addition cash flow in an economic area by buying government bonds. This gives the bank access to ‘cheaper’ money that they then lend out to business and individuals, they as a result go out and spend this cheap money creating more taxable revenue and ideally growth. As more money is created however the money in the system is worth less so that currency weakens. As the market fully expects QE to be announced this has arguably been priced into the market weakening the single currency significantly. Where it gets interesting is the amount of government bonds that they may buy from each member state. Remembering that they all contribute a different amount, therefore it would be ‘unfair’ for them to buy the same amount from Germany that puts a lot into the EU as Greece that takes a lot out. The other impact is that the creation of QE makes debts in each country more expensive and with only 3 members of the EU having a budget surplus this year this too could have a real impact. There is the potential that the decision in 48 hours’ time forces the hand of the Greeks to leave the EURO if they make the debt they have many times more expensive and it is this large unknown and what it could symbolise that will make such a big impact this week. PLUS with this being such large news there is a lot of day and week traders being attracted to the event willing to gamble on the outcome, this is expected to significantly changes the order levels of currency along with its demand and price. So there are many variables and therefore many potential outcomes from the event. As a result if you have a currency position currently or a need in the next few weeks I would certainly suggest getting in contact to discuss your options in more details and how to get the most for your money over this event. For a personal approach to this feel free to contact myself directly via [email protected]. Look forward to hearing from you.