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(EU) ECB Draghi: If premium on Government borrowing hurts monetary policy transmission then dealing with them falls within the ECB’s mandate
How to interpret this speech? ECB Draghi stated that “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough,” and “… to the extent that the size of the sovereign premia (borrowing costs) hamper the functioning of the monetary policy transmission channels, they come within our mandate,” which means that ECB is going to buy Spanish and Italian bonds to drive their yields to sustainable levels, or good news for the Euro as the reason for the continued Euro sell-off is partially due to the lack of action by the leaders and contagion fear. This promise of action from ECB addresses both issues in my opinion and could bring stability back to the Euro for at least a couple of months, depending on the measures implemented. I believe market is going to be on ultra alert in the next few days and look forward to the next ECB meeting for more details. I believe perception is key to Forex and perception is good right now for the Euro. However, remember that the situation in Greece, Spain, and Italy have not disappeared, this effectively just delays the inevitable, and ECB could only do so much… Market will probably consolidate its gains today as traders are still looking to sell on rallies… The real mover will probably be next ECB Meeting on August 2, and I’ll anticipate some pre-buying ahead of the meeting as ECB Draghi could announce a third round of LTRO (Long-Term Refi Operation) or SMP (Securities Markets Program) following today’s comments with concrete action. Verdict: Wait for EURUSD to drop and buy on dips early next week. |
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EU: ECB Draghi To Open The Liquidity Flood Gate?
July 26, 2012 by 5 Comments
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[…] ECB Draghi spoke on July 26 on “doing everything possible” to solve the bond crisis, please read my analysis on the subject and a potential trade for that […]
I was hoping to sell GBPUSD at 1.5700. But stopped due to this decision by ECB Draghi comments.
Not sure whether to even BUY at bottom. I will wait now to get better stage for trades. GBPUSD following same pattern as EURUSD. So I think it’s better to wait now. What do you think?
I would stay away from selling GBP or EUR right now. Market is very optimistic over Euro and that optimism is likely to continue next week.
i follow your prediction, i loose too much money.
Prediction didn’t count on Draghi surprising the market by saying ECB will lower bond yields. This is a surprise and anyone who pays attention to the news should be able to see this, at the very least, use a reasonable stoploss and not lose too much money…