Weekend resume by me:
UK press – “ECB injects billions into eurozone as recession fears grow”
http://www.forexlive.com/blog/2014/0...g-2-june-2014/
ECB set to do more than cut rates this week. Beyond neg depo rate, new LTRO with term of 4 yrs also being considered
Spiegel sends out a article saying ECB will 'do more than cut rates this week'
http://www.spiegel.de/wirtschaft/unt...-a-972749.html
More on ECB on Financial-times
ECB poised for negative rates, will offer unlimited LTROs – FT
AEP on China QE – PBOC “is exploring direct purchases of bonds and other assets”
http://www.forexlive.com/blog/2014/0...omment-1167198
Speculation that Swiss bank will counter-act ECB measures with their own to defend their currency.
China PMI for May came out at 50.8, 50.7exp.
People’s Bank of China (PBOC) to boost lending to small firms
http://www.forexlive.com/blog/2014/0...-01-june-2014/
Reuters: Time for ECB to put money where its mouth is
http://uk.reuters.com/article/2014/0...0EC18V20140601
Draghi jawbone could have worked as a cap on euro with inflation numbers acting as a knout-out effect, it only depends on the follow through:
The risks increased that low inflation will eventually cause ECB to act, and according to the press and currency analysts that risk is imminent.
I think ECB has a good chance on next meeting to successfully follow through on their ideas on what they are going to do or be more clear about 'the plan' that ECB has on easing measures. If they fail to do that, EUR will sharply rally from these levels and expect a lot of volatility on other assets as well.
Other trend that has been happening is a rise in verbal/direct intervention on various countries against their currencies:
Obviously not everyone can weaken their currency, so this creates a approach to decide which currencies to buy, which are the central banks that are most likely to fail to push-down their currencies. I would say EUR is one of them, as their chances of failing at weakening their currency is bigger than say USD, YEN, GBP that are expanding their balance sheet or even on AUD or NZD that are already threading direct intervention.
If ECB indeed engineers a fall in the euro of 10% (<1.30) or so which would need a dramatic measure by them, I think other central banks would counter-act ECB measures including floors on their currencies. So in the end I think ECB can win some battles but not the currency war.
Some important questions.
Is ECB likely to do FX intervention desguised as QE or outright like Japan did?
Yes on QE. No on direct intervention.
How far would Euro need to be for that to happen?
I think ECB would have conesensus to do direct intervention only above 1.50
UK press – “ECB injects billions into eurozone as recession fears grow”
http://www.forexlive.com/blog/2014/0...g-2-june-2014/
ECB set to do more than cut rates this week. Beyond neg depo rate, new LTRO with term of 4 yrs also being considered
Spiegel sends out a article saying ECB will 'do more than cut rates this week'
http://www.spiegel.de/wirtschaft/unt...-a-972749.html
More on ECB on Financial-times
ECB poised for negative rates, will offer unlimited LTROs – FT
AEP on China QE – PBOC “is exploring direct purchases of bonds and other assets”
http://www.forexlive.com/blog/2014/0...omment-1167198
Speculation that Swiss bank will counter-act ECB measures with their own to defend their currency.
China PMI for May came out at 50.8, 50.7exp.
People’s Bank of China (PBOC) to boost lending to small firms
http://www.forexlive.com/blog/2014/0...-01-june-2014/
Reuters: Time for ECB to put money where its mouth is
http://uk.reuters.com/article/2014/0...0EC18V20140601
Draghi jawbone could have worked as a cap on euro with inflation numbers acting as a knout-out effect, it only depends on the follow through:
The risks increased that low inflation will eventually cause ECB to act, and according to the press and currency analysts that risk is imminent.
I think ECB has a good chance on next meeting to successfully follow through on their ideas on what they are going to do or be more clear about 'the plan' that ECB has on easing measures. If they fail to do that, EUR will sharply rally from these levels and expect a lot of volatility on other assets as well.
Other trend that has been happening is a rise in verbal/direct intervention on various countries against their currencies:
Obviously not everyone can weaken their currency, so this creates a approach to decide which currencies to buy, which are the central banks that are most likely to fail to push-down their currencies. I would say EUR is one of them, as their chances of failing at weakening their currency is bigger than say USD, YEN, GBP that are expanding their balance sheet or even on AUD or NZD that are already threading direct intervention.
If ECB indeed engineers a fall in the euro of 10% (<1.30) or so which would need a dramatic measure by them, I think other central banks would counter-act ECB measures including floors on their currencies. So in the end I think ECB can win some battles but not the currency war.
Some important questions.
Is ECB likely to do FX intervention desguised as QE or outright like Japan did?
Yes on QE. No on direct intervention.
How far would Euro need to be for that to happen?
I think ECB would have conesensus to do direct intervention only above 1.50
