Thursday, June 5, 2014
During today's trading session, the much anticipated ECB Policy Announcement created volatile trading for Euro Crosses, as investors continued to interpret the outcome of the new ECB accomodative measures.
The ECB cut rates by 10bps in both the refi and deposit rate, causing the later to be in negative territory to -0.10%. They also announced Targeted LTROs in the amount of EUR400 Billion and unsterilized purchases in the SMP that would counter the deflationary concerns and help to stimulate growth in the Eurozone economy.
The ECB's decision to add stimulus is a very supportive move for European financial assets like equities and peripheral bonds (Spanish 10-year government yield at +2.60% and below its US equivalent for first time in four-years). Mario Draghi's decision to "do whatever it takes" encouraged portfolio investment into Euro Region, and this will always be euro-supportive. After the ECB revealed the new measures, the EUR/USD initially fell to support at 1.3503, and later rebounded to 1,3670 in a 167 pip range.
Tuesday, May 27, 2014
The EUR/USD pair traded with a negative bias, as the greenback continued to rally on good fundamentals coming out of the US. We saw US treasury yields rally and gold prices fall which put pressure on the common currency and caused the pair to slide from the session high at 1.3669 to the session low at 1.3613 for a 56 pip range.
Edward Nowotny, who is a member of the European Central Bank's governing council warned Tuesday about the risk of low inflation rates triggering decreasing growth in the euro zone. He added that the governing council would be discussing measures on how to address this risk during their June meeting. Mr. Nowotny's comments come the day after ECB President Mario Draghi warned that there is a risk that low inflation could spiral into a deflationary cycle, where consumers and companies delay purchases and investments. This news, along with a strong reading in US Durable Goods Orders (+0.8%) and US Housing Prices(+12.4%y/y) sent the EUR/USD to session lows.
The recent whipsaw price behavior of the euro is just an indication of the overall uncertainty & indecision surrounding the pair. We may continue to see this range-bound volatility until after the ECB's Monetary Policy meeting on June 5th. However, if we continue to see improving fundamentals from the US, this will accelerate a further move to the downside.