Eur/usd - page 515
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The EUR/USD fell by 0.43% to 1.0712, falling from session highs at 1.0873.
Pound, Dollar Jump Against Euro as ECB Extends Supportive Policy Stance
The Euro dropped as markets digested the full implications of the ECB's December decision to keep its asset purchase programme running through 2017.
At their December 8 meeting the European Central Bank announced they would hold at -0.4% their deposit rate and the main refi rate at 0.0%.
The Bank also reduced the rate of QE purchases to €60bn per month to end Dec 2017. Remember the asset purchase programme runs at €80BN to March.
But, they warned they may also increase the size or duration of programme if needed - a warning shot to those traders looking to push the Euro and Eurozone bond yields too high.
The maturity range also changed to 1-30 years (from 2-30 years) while the Bank introduces cash as collateral for PSPP securities lending.
HICP (inflation) for next year revised up to 1.3%, GDP to 1.7%.
The Euro rallied in an initial knee-jerk reaction to the news before slumping sharply.
Analyst Reactions and Predictions for the Euro
Tim Riddell at Westpac:
This extending and effective easing of policy, together with greater flexibility, should, at a minimum, have placed a cap on any further EUR gains into the FOMC next week.
In a broader sense, this effective and extended easing may make EUR a funding currency of choice and so puts EUR-crosses in focus should the consolidation in USD persist. On that basis, EUR/AUD, EUR/CAD and especially EUR/NZD will be ideal shorts into any interim rebounds.
With regards to EUR/USD, rebounds off recent lows in the 1.0500-10 area, which was tested in the immediate aftermath of the Italian referendum result, appear to have affirmed the range lows seen over the past 18-months
Shaun Osborne at Scotiabank:
We view EURUSD levels above 1.08 as very 'rich' relative to the fundamental backdrop. We target EURUSD dropping to 1.02 in H1 2017.
The ECB caught the markets by surprise in announcing a reduction in its asset purchase progamme as of April next year. The consensus had expected the current run rate of EUR80bn in purchases to be extended beyond March for somewhere between 3-6 months. In fact, the ECB announced that it would buy EUR60bn in assets per month through December 2017.
In overall terms, we think the ECB stance remains highly accommodative and suggests a very easy policy bias will persist for the foreseeable future.
Bipan Rai at CIBC Macro Strategy:
In the near-term, monetary policy differentials will drive EUR/USD price action. Levels are off the lows for now, but currently within 1.0630/60 support area. Extensions below this region will need support from a more hawkish FOMC next week.
The ECB felt it was necessary to send a message of stability post the Italian referendum (re: banking sector concerns) and ahead of the upcoming elections in the Netherlands, France and Germany. By extending the purchase program to Dec 2017 they have avoided market debate about tapering through the key election cycle.
Neil Wilson at ETX Capital:
We saw a vicious move in the Euro on the release of the monetary policy statement, with EUR gaining a cent on the dollar before rapidly handing back those gains and turning negative. EURUSD quickly reversed the kneejerk rally as investors took this for a relatively dovish announcement and was last trading down for the day.
Kathleen Brooks at City Index:
Ok, so the ECB didn't do as I expected, but I was right in saying that there is no free lunch at the ECB - they give with one hand, and taper with another!
The ECB has said that it will extend its QE programme out to December next year, however, from April to December asset purchases will be EUR 60 bn per month, EUR 20bn less than the current monthly purchases. This is a shocker, but probably to be expected, after all, the ECB has made sure that its QE programme will easily see it through the EU’s political risk events set for next year and the German elections scheduled for next September.
Was the statement dovish or less dovish than expected? The answer is both… The extension to QE is much longer than we expected, but the tapering announcement is almost hawkish, a mere three days after the Italian’s voted No in its referendum.
source
Germany trade balance Oct EUR +19.3bln vs +22.0bln exp
Germany Oct trade balance 9 Dec
The EUR/USD pair has turned to bearish mode and is very close to the yearly low pinned this December at 1.0504. The current market price is 1.0551 and the risk is clearly facing the downside, with a break below 1.0500.
EUR/USD forecast for the week of December 12, 2016
The EUR/USD pair initially rally during the week, but you can see that we fell rather precipitously. This was mainly due to the ECB suggesting that quantitative easing wasn’t going to end in March 2017, but rather at the end of the year. With this, it was of course negative for the Euro and we ended up falling from there. We are testing the 1.05 level, and it looks as if the central bank once the currency to drop below there. Once it does, will start reaching towards the parity handle.
EUR/USD Weekly Outlook December 12-16
Developments in Europe caused volatility in the EUR/USD exchange rate as the Italian referendum triggered a brief drop to the lowest level since March 2015 in the early week, followed by a sharp reversal that is likely to have attributed to some panicked short covering. The ECB introduced a new stimulus program in the second half of the week, effectively taking the pair back into negative territory for the week and once again to the lowest levels seen since early 2015. The markets will be focused on the United States in the upcoming week as the Fed will hold a two-day meeting where they are expected to announce the second rate hike in ten years.
The ECB announced an extension to their bond purchasing program beyond the original expiry date of March 2017. The central bank will continue until December 2017, however, at a reduced pace of 60 billion euros per month versus the prior 80 billion euros a month. Mario Draghi is credited as to the precise timing of the announcement. Markets have been looking for monetary policy direction since the UK referendum, and more recently, expectations for forward guidance had been growing with the March expiry nearing. The decision to announce shortly ahead of the Fed meeting, and after the US election, renews the monetary policy divergence outlook that was predominant in 2014, albeit to a lesser degree. With new easing measures in place, the single currency will tend to be favored to the short side during periods of Dollar strength.
The ECB has pleaded for fiscal stimulus throughout the year, citing that monetary policy alone is not sufficient. Ironically, the only economy among the majors that is in a tightening cycle, is likely to receive fiscal stimulus. Expectations have been building that the new Trump administration will boost the economy via tax cuts and an aggressive fiscal stimulus package. Recent gains in the Greenback can be attributed to speculation surrounding the new President, while the Fed’s role in the value of the Dollar will be determined in the upcoming week.
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