ECB Recap: “QE Infinity” Emboldens Euro Bears
September 12, 2019 1:35 PM
The European Central Bank made a series of decisions to ease monetary policy and try to stimulate the Eurozone economy
It wasn’t quite an “empty the clip” decision at ECB President Mario Draghi’s penultimate meeting, but the Italian has definitely made a dovish impression.
In its highly-anticipated policy meeting, the European Central Bank made a series of decisions to ease monetary policy and try to stimulate the Eurozone economy:
- Cut deposit rates 10bps from -0.4% to -0.5%
- Introduced a two-tier system for negative interest rates
- Restarted Quantitative Easing at €20B/month effective November 1, with no explicit expiration date
- Announced changes to its Targeted Longer-Term Refinancing Operations (TLTROs)
Many of these changes had already been “priced in” to the market, but the decision around QE is interesting. The €20B monthly pace of purchases was smaller than many analysts had anticipated, but the lack of an explicit termination date makes the announcement more dovish than expected. With inflation subdued, growth stalling and negative interest rates becoming entrenched, is the Eurozone turning into Japan? This is the fear of many traders and explains why the euro has fallen back below 1.10 in the wake of the release.
Source: TradingView, FOREX.com
ECB President Mario Draghi is taking the stage for his press conference as we go to press, and traders will be watching closely to see how he characterizes the decision. Expect questions about the open-ended QE program and technical changes to QE rules to drive EUR/USD over the rest of the day. More dovish commentary could take the world’s most widely-traded currency pair down to test its 2-year low near 1.0930 next.
In other news, US President Trump has already chimed in on the decision. After calling Federal Reserve policymakers “boneheads” yesterday, the President tweeted that “European Central Bank, acting quickly, Cuts Rates 10 Basis Points. They are trying, and succeeding, in depreciating the Euro against the VERY strong Dollar, hurting U.S. exports.... And the Fed sits, and sits, and sits. They get paid to borrow money, while we are paying interest!” Needless to say, next week’s Federal Reserve meeting will be worth keeping a close eye on!
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.