POST ECB Press Conference Highlights And Analysis


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(EU) ECB Press Conference Draghi Prepared Speech Highlights:

  • ECB may undertake outright open market operations, such moves would be within ECB’s mandate; may undertake other non-standard measures (confirms earlier press speculation)
  • To design framework for such measures over coming weeks. The appropriate committees will work on the details in coming weeks.
  • Looking beyond the short-term, euro zone economy to recover only gradually.
  • There are many headwinds to growth: balance sheet adjustments, unemployment, the global slowdown, tensions in financial markets, possible medium-term increases in energy prices.
  • Reiterates underlying price pressures should remain moderate, risks to the outlook remain balanced over the medium term.
  • Inflows into broad money markets in Q2 were weak. Annual growth rate of loans to private sector declined in July. Subdued loan growth reflects risk aversion and the current economic situation.
  • Looking ahead, it is essential for banks to strengthen resilience.
  • Price developments should remain in line with price stability in the medium term.
  • More urgent steps need to be taken by euro zone nations to improve competitiveness. Government need to restore sound fiscal positions. Further fiscal reforms must be implemented swiftly.

(EU) ECB Press Conference Draghi Q&A Session Highlights:

  • Discussed possible interest rate cut, unanimously decided against cutting rates; negative deposit rates are “largely uncharted waters”.
  • Governments must go to the EFSF, ECB cannot replace the action of governments on the fiscal side.
  • EFSF/ESM action is a necessary condition for ECB intervention. Going to the EFSF is a necessary but not sufficient condition for ECB action.
  • ECB may act on bond buying only after governments apply to the EFSF.
  • Concept for possible bond buying that we have give to ECB committees is different than prior programs (different than SMP), new bond buys would be focused on shorter part of the yield curve.
  • These will be full transparency about the countries where it will take place and in the amounts, will only be carried out on secondary markets.
  • Up to governments not the ECB to provide a banking license. Current design of ESM does not allow it to be a suitable counterparty. We have a legal decision from the ECB that it is not a suitable counterpary.
  • Did not discuss the situation of specific countries. Spain has achieved significant progress on many fronts
  • Too early to say whether further bond buys will be sterilized or not. Do not yet know whether buys will be limited or unlimited. Amount needs to be “adequate to reach objectives.”
  • What we have expressed today is “guidance.” The three ECB committees will meet and examine the guidance. Then board then will later meet and decide what to do. – Part of the guidance to the committees is to ask them to examine other potential non-standard measures.
  • Governing council endorsed statement that the “ECB will do whatever it takes
  • ECB’s Weidmann expressed reservations about new bond buying program, but then again the Bundesbank’s reservations about bond buying is well known.
  • Our greatest concern is with the fragmentation of financial markets. Symptoms of such fragmentation includes decreasing share of cross-border money market loans. ECB has seen a significant increase in use of domestic capital for collateral for ECB loans. These problems are what we need to repair.
  • Not one word of the London speech last week surprised the ECB board, all the words in the speech had been discussed already by the board.
  • Stresses that today was a road map for possible bond buying, not a decision to undertake bond buying.
  • We are not going beyond our mandate, as stated several times in my London speech. ECB remains the guardian of price stability.
  • ECB does not consult with heads of state on its own internal discussions. ECB preserves its independence.
  • Focus on the short end of the curve is because these instruments are closer to money market operations. We want to restrict the program to what is considered classical monetary policy.
  • ECB is not “rowing anything back” in its remarks today. London remarks were not misinterpreted, they came out well.
  • We want to repair monetary policy transmission channels. Monetary policy alone is not enough without government action. That is why conditionality is essential.
  • It is pointless to bet against the euro because it is irreversible.

How to interpret these headlines?

Market sold off on the Euro after the ECB press conference today, mainly due to the lack of concrete measures to match the high expectation set by Draghi’s comments on “will do whatever it takes” to solve the EU crisis.  In essence, the ECB didn’t deliver what it promised, and the market decided to punish the Euro by selling it.

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Looking ahead, ECB is now tying its involvement with formal bailout requests, which pretty much deters Spain from moving forward due to the harsh austerity requirements that are likely to be included with the bailout; remember, Spanish Banking Aid is Spain’s way of working around the system to recapitalize its troubling banking sector without any sovereign conditions, and I believe we will not see a Spanish Bailout request this year, and that would add more selling pressure to the Euro.

I’d be inclined to SELL the EURO on rallies.  We’ve been changing our directions back and forth lately, but that’s exactly what the market has been doing and I believe any thing short of a full-scale bailout for Spain, market is not going to be satisfied and contagion fear should weigh in on the Euro.


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  1. […] of punitive sell-offs on the Euro, reports began to hit the press as some analysts thought that Draghi’s comments were misunderstood. Draghi stated that the ECB could launch a bond buying program in the future […]

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