(EU) ECB Chief Draghi (Prepared Speech):
(EU) ECB Chief Draghi (Q&A):
Here are some analysts’ sentiments:
ECB’s moves were seen by markets as highly inadequate: just one month ago, Draghi himself said that cutting rates did little good because the monetary transmission mechanism was broken. Some were hoping for bolder ECB policy moves to help ease the euro zone crisis, however Draghi offered no new concessions, drawing accusations from some analysts that the positive momentum generated by the recent EU Summit was being diluted by ECB’s inaction.
Many analysts blamed the sell-off on the absence of supportive extra ECB policy moves (no LTRO, no further peripheral bond concessions) rather than the rate cut. One analyst said that the ECB has simply added back the risk premium that the EU summit sliced off last week…
How to interpret these headlines?
It obviously doesn’t take a genius to see that the market is disappointed over ECB’s rate decision today. But the bulk of the move came in ahead of the ECB Press Conference at 8:30am, where EURUSD was hovering around the 1.2400 after the sharp drop from the 1.2520 level… and of course, once the press conference started, EURUSD dropped another 40 pips. This leads me to believe that market made up its mind BEFORE the press conference due to NO new easing or liquidity programs were announced, along with the Zero-Interest Rate on the Deposit Facility, which probably hit a chord with perpetual Euro sellers. Remember ECB is responsible for 3 rates, the Marginal Lending, Deposit, and Main Refinance Rate, with the Main Refi falling to the historical low of 0.75% and Deposit at 0.0%, this latest episode from ECB is not inspiring any confidence.
I believe the market was confused over the relatively lack of action from ECB which contributed to the sharp sell-off in the Euro… However, I believe EURUSD will probably remain resilient at the current level, hovering around the 1.2400, until the next wave of news catalysts hits the wire… In the meantime, I would be keeping my options open for a potential EURUSD comeback if tomorrow’s NFP comes out disappointing; or get ready to dump Euro on a much better than expected NFP release as USD offers a better fundamental outlook and less uncertainty in comparison (at least for now).
Here’s Why Euro Was Dumped After ECB Press Conference…
July 5, 2012 by 2 Comments