Is Europe Losing the Battle Against Deflation? [Vanguard FTSE Europe ETF, iShares MSCI EMU Index]

EuropeThis is a 10-year chart of the euro verses the U.S. dollar. Since the global credit crisis in 2008, the euro/dollar has had big advances and big declines with lower highs and lower lows. This action has formed a long-term downward channel (drawn on the chart).

While watching inflation fall to a five-year low of 0.5% in May (down from 0.7% in April), the European Central Bank (ECB) has been taking drastic measures to stave off potential future deflation. The goal of the ECB is to drive the euro lower and flood the system with cash in order to push inflation up to palatable levels.

On Thursday, ECB president Mario Draghi followed through on the promise by introducing an unprecedented measure – cutting the bank’s deposit rate to negative 0.1%.

This is the first time a major central bank has used a negative rate.

The ECB also cut its main interest rate to a record-low 0.15% from 0.25%, and plans to offer banks cheap loans until 2018; buy batches of loans to small businesses; and cease the collection of weekly deposits of certain bonds previously purchased. The last move should add 175 billion euros into circulation. Aside from adding

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