Mario Draghi and the European Central Bank (ECB) had a tall order this morning. Several indicators over recent months have highlighted the Euro Zone’s struggles to spur economic growth. And, although the market was expecting The ECB to act, it was a bit uncertain about the course action.
Well, a triple rate cut and new stimulus program gave the market a shot of juice. And then some.
Check out the chart below of the EUR/USD just after the announcement. And this move lower comes after months of Euro weakness. So the Euro was already accounting for some stimulus… but apparently not this much. Note that as of the time of this writing, the EUR/USD has weakened further, falling as low as 1.292.
$EURUSD -130 Pips, Tests 1.30 After ECB Announces of Rate Cuts, Unveils ABS Program $FXE $DX_F $UUP https://stks.co/i11DA
— See It Market (@seeitmarket) Sep. 4 at 08:05 AM
This chart was among several tweets that we put out this morning covering the ECB meeting and announcement. (Follow us: @seeitmarket). Â Here are a few tweet highlights from the meeting:
ECB Cuts Rates Again, Pushing Further Into NIRP: Refi rate -10bps to 0.05%; Margin Lending -10bps to 0.3%; Deposits -10bps to -0.2%. $MACRO — See It Market (@seeitmarket) September 4, 2014
Draghi Discusses ECB’s “New Covered Bond Program” to Buy Euro Area ABS. Details To Be Released/Will Begin after ECB’s Oct Meeting. $MACRO — See It Market (@seeitmarket) September 4, 2014
Draghi: QE discussed by Governing Council. “Some were in favor of doing more, some in favor of doing less. Proposal strikes a ‘mid-road'” — See It Market (@seeitmarket) September 4, 2014
It is worth noting that the decision was not unanimous, with some members, including the Bundesbank Chief, opposed to the rate cuts.
It will be interesting to see how the currency markets look a couple weeks from now. The Euro and the US Dollar have been headed in different directions. And just as the Euro plunged this morning, the Dollar surged. But as mentioned earlier, the big reaction moves in the currency markets are in addition to weeks of trending action. With this in mind, traders will have to determine if today’s moves are a sign of capitulation (and perhaps they exhaustive) or a sign of trend affirmation.
Traders will also need to keep an eye on developments in the Russian-Ukraine conflict, as that could add another shot of volatility to the currency markets should the situation deteriorate further.
Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
