Did the Big Picture Change For the Euro?
Skerdian Meta • 2 min read
Yesterday we saw the EUR/USD jump all of a sudden at around 15:00 PM GMT. It came as a bit of shock to us because we had just opened a sell forex signal in EUR/CHF and the spike in EUR/USD soon spilled in other forex pairs. We posted an update last evening about this unexpected jump but we didn´t get too much into details, so let´s do so now and see what happened and what effects it might have on the Euro.
What happened was an unnamed ECB official commenting on Bloomberg that the ECB members reached a consensus on their September meeting to start tapering the asset purchase (QE programme) by 10 billion Euros a month. The Euro immediately jumped more than 100 pips higher and then stalled. A few minutes later Livesqwak called Draghi´s (ECB president) office and they completely denied such a conversation had taken place in the first time.
This is a very strange situation. Draghi´s office denied any tapering conversation, but they don´t mind denying the denial if that suits them. What makes this strange is that this might be true. Yesterday I was very skeptical about this, but now that I think the only reason for this is that that´s what the forex market is expecting, that´s the market sentiment has been since the ECB started the QE programme about two years ago. The market is expecting the ECB to cut the interest rates further and increase QE.
But, the economic situation has improved in the EU recently. Even Draghi said that they need to wait for the effects of their monetary policy, which means that at least they won´t loosen it further in the near term. Besides that, the ECB is having difficulties trying to find enough assets such as government bonds, so they might be forced to reduce the monthly purchases even if they don´t want to.
If this is the case, this is a game changer for the Euro. The market is expecting the ECB to become more dovish, but if this is true then it makes the ECB hawkish. We´re not sure yet if this was just one of those comments or if this is a signal that the ECB is trying to send to the market, but if this is true then prepare for a change of the era.
The Euro has lost more than 30 cents since the first day Draghi announced the start of the loose monetary policy. If this is the beginning of the end for the QE programme, then this might be the end of the Euro downtrend.