I read every word written by Silvio Gesell and negative interest as well as tons of academic papers related to negative interest rates and Gesell theories. Not a word was written regarding negative interest rates and combinations of QE, nor was it a recommendation. QE is a derived policy from the central banks and not Gesell. The ECB way to implement and sustain negative interest is by bond purchases. The 6 central banks adoption of negative interest all use some form of QE to ensure negative interest rates hold. Its a hybrid policy as negative rates by itself I see as a pure supply side approach while QE is pure Keynesian. Together, we have hybrid polices in a two pronged approach. Is further QE needed, is it the way. Will QE see Europe crumble further. 1 year later, Inflation is now negative. Is QE the blame. I always believed negative rates has extraordinary potential. Add QE though and we don’t know because negative rates was never implemented. We are in experimental territory. 2015 saw the fastest interest rate drops among 10 nations and was actually 60% of what was seen from 2008 – 2007. So far Gesell and negative interest rates are working as planned. Draghi has miles of room to further cut if necessary.
EUR/USD. Big vital points. 1.0982 and 1.0910. The pressure continues to build on current prices. Higher EUR/USD goes, greater will be the drop.
EUR/USD. bottoms. 1.0978 and 1.0923. Bottom target 1.0923. Ranges.1.1122 above and 1.0837 and 1.0692. Targets 1.1009 failure point and 1.1011. big points above 1.0982, 1.1000 and 1.1062. Should Draghi drive EUR/USD to 1.1054 then that point is severe overbought, out of bounds type overbought. I expect more dovish commentary from Draghi. Economic risks to downside, Inflation targets extended to whatever 2018 would see EUR/USD drop. Central banks haven’t been near inflation targets since the 2008 crisis. Points on the way up, 1.0982, 1.0998, 1.1000, 1.1003, 1.1009, 1.1010, 1.1017. Sell any rallies as longs are to scary.
Brian Twomey, Inside the Currency Market, btwomey.com