No, its not a sci-fi movie title, even if the current scenario was more science fiction than a possibility a few years ago.
I´m referring to the “Japanization” of the Euro Area, a long period of zero rates due to low growth or even recession, added with some very low inflation or even deflation. So far, the first two points were almost a given, rates will continue to be low, growth lower than inflation, barely exceeding the 1%, but today investors lowered their expectations for the Euro-are to a record low, with the five-year forward five-year inflation swaps reaching the 1,183%.
Photo by Bernard Hermant.
A level that is a far cry from the 2% benchmark used by the ECB to set its monetary policy, so this means increased chances for the return of a Quantitative Easing plan, maybe more bond buying, and reduced space for gains in the EUR/USD, even if the FED is staging a new dovish stance.