ECB QE

[md2018]

What will be the effect of continuing QE by the ECB and the continued drop of Euro on the American markets? Will the I-Fund continue to move upward?

"Euro Tumbles as ECB’s Draghi Seen Sticking to Bond-Buying Plan
By Eshe Nelson - Apr 15, 2015, 4:57:49 AM

The euro fell against the dollar before European Central Bank President Mario Draghi presents a review of his 1.1 trillion-euro ($1.2 trillion) asset-buying plan that aims to revive the region’s economy and stoke inflation.

The common currency has weakened more than 2 percent since the ECB began purchases of sovereign debt on March 9. All eyes are on Draghi’s regular press conference after Wednesday’s interest-rate decision when, investors speculate, he’ll reiterate his commitment to loose monetary policy. He’s also likely to face questions about how long quantitative easing will last, and traders will be looking for clues as to whether the program will be wrapped up early if it achieves its goals.

“Draghi will reiterate the dovish policy setting,” said Alvin T. Tan, a foreign-exchange strategist at Societe Generale SA in London. “I’m very doubtful there’ll be any talk of tapering at this point. There’s been some recovery in the European data in recent weeks but it’s still pretty tentative.”

The euro tumbled 0.7 percent to $1.0581 as of 9:54 a.m. London time. It has weakened in seven of the past eight days and is approaching last month’s low of $1.0458, its weakest level since January 2003.

The ECB will announce its rate decision at 1:45 p.m. Frankfurt time and Draghi will speak to reporters 45 minutes later. Officials will hold the main refinancing rate at 0.05 percent, according to every one of the 44 economists surveyed by Bloomberg.

‘Sustained Adjustment’

The ECB has said QE will continue until September 2016 or until it sees a “sustained adjustment” in the path of inflation toward its medium-term goal of just under 2 percent. As Executive Board member Yves Mersch noted last week, that means it could be curtailed or extended, depending on the data.

Economists surveyed by Bloomberg last month said euro-region inflation will increase by 0.3 percentage point this year, with a weaker exchange rate doing most of the work. Consumer prices fell 0.1 percent in March from a year earlier.

The euro has tumbled more than 12 percent against the dollar this year and in the first quarter posted its worst performance since its 1999 debut.

Talks over the future of Greece’s financing are also weighing on the single currency, which on Tuesday reached its weakest level versus the Swiss franc since January. The euro fell 0.4 percent to 1.03246 francs Wednesday, a day after touching 1.02967.

“Negotiations don’t appear to be progressing very well,” said SocGen’s Tan. “This background noise about Greece will continue to undermine the euro.”

[rcozby]

md2018 - great questions! As already noted in a parallel thread, the I Fund has lots of moving parts, so it's hard to say anything about it with confidence. That said, from an equity performance perspective, we do know that the I Fund is driven by Japan, UK, France, Germany, Switzerland, Austrailia, Spain, Hong Kong, Sweden, Netherlands, Italy - in that order, and that these countries comprise 92% of the I Fund's value (see http://www.ishares.com/us/products/2396 ... i-eafe-etf). More importantly, Japan and the UK comprise 42% of the fund's value...so while the I Fund's relative performance as correlated to ECB QE may be one piece of the puzzle, Abenomics is another, perhaps more important piece.

Of late, you can see a pretty solid correlation between I Fund performance and the dollar/yen trade (be sure to account for the date line) as well as with the Nikkei. Japan is not only working to devalue the yen, but it is also using its government pension funds to buy stocks. Thus, while it may be speculation as to how much of the ECB action will influence US markets, Japan's influence on the I Fund appears to be a pretty direct connection, and there's no indication that the BOJ intends to slow down any time soon.