the daily chartist

Draghi unleashes the nukes EUR/USD recap for 10.03.2016

published 5 years ago

"Whatever it takes" finally transformed in to some action yesterday at the long anticipated ECB meeting. Before the press conference itself interest rates came up. Euro dropped dead for 162 pips on the news. Highlights as follows:

  • Cuts main refi rate to 0.0% vs 0.05% exp. Prior main refi rate was 0.05%
  • Cuts deposit rate to -0.40% vs 0.40% exp. Prior deposit rate was -0.30%
  • Marginal lending rate cut to 0.25% vs 0.30% exp. Prior was 0.30%
  • 4 new TLTRO's announced (to be launched in June) Targeted - long term refinancing operation
  • QE raised to 80bn euros extra to start in April
  • investment grade bonds by non-bank corporations 

 Full monetary policy decisions statement here

 Opening statement highlights:

  • ECB's stimulus package is comprehensive
  • QE will run until the end of March 2017 or longer if necessary
  • QE will run until the ECB sees a sustained rise in CPI
  • Raises Issue share limit on QE bonds to 50%
  • Corporate bond purchases will start end of Q2
  • 4 new TLTRO's will run for four years
  • The first, TLTRO 2 will start in June
  • TLTRO rate can be as low as the prevailing deposit rate
  • Switches from TLTRO 1 will be allowed
  • Counterparties entitled to borrow 30% of stock of eligible loans
  • Interest rates will remain at or below current rates for an extended period
  • Low rates will stay long after end of QE
  • Will monitor inflation outlook
  • Latest survey data points to weaker than expected growth momentum
  • Expects recovery to proceed at moderate pace
  • Low oil prices still supportive of disposable income
  • Growth forecasts revised down
  • 2016 GDP 1.4% vs 1.7% prior
  • 2017 1.7% vs 1.9% prior
  • 2018 1.8%
  • Risks to Eurozone growth outlook still on the downside
  • Inflation to stay negative in the coming months
  • ECB will monitor price setting and wages
  • ECB is looking out for second round effects
  • CPI forecast 2016 0.1% vs 1.0% prior (big drop)
  • 2017 1.3 % vs 1.6% prior
  • 2018 1.6%
  • Oil price drop is reflected in forecasts
  • Lower growth forecasts reflects lower global growth prospects
  • ECB accommodative stance supports economic recovery
  • Structural reform policies still need to do more
  • Reform effort need to be stepped up by the majority countries

 ECB's latest growth and inflation forecasts:

 Inflation (HICP):

  • 2016 0.1% vs 1.0% in Dec
  • 2017 1.3% vs 1.6% in Dec
  • 2018 1.6%


  • 2016 seen at 1.4% vs 1.7% prior
  • 2017 seen at 1.7% vs 1.9% prior
  • 2018 seen at 1.8%

 Q&A section followed after the main speech and here are the highlights:

  • New TLTRO loans to have maturity of four years each
  • Banks who lend more to get better rate and more access
  • Loan growth in Eurozone still too low
  • Rates will stay low for a long period of time
  • Based on the current view, we don't anticipate lowering rates further
  • Emphasis will shift from rates instrument to other non-traditional intruments

 Questions on "helicopter money" weren't answered on firmly.

The big whipsaw came after Draghi didn't indicate any further rate cuts and the euro quickly turned back up, recovering from the early 162 pips drop and turned positive and closed with almost 400 pips up from the day low. Euro tested the pre-Dudley levels again finding some support at 1.08220. 1.09493 still plays some role on the downside and on the up we have 1.12181 and 1.13765. Euro currently is trading between 1.08220 and 1.12181 as other two mentioned levels are intermediate ones. Price is again above the 200 Daily MA and will go as a support for the price if it tries to reach any new high ground. 

 The new QE and the rate cut from Draghi's delivered nukes took its toe on the euro, but the comment: "Based on the current view, we don't anticipate lowering rates further" euro went up again, even after the dark forecasts about growth and inflation that are casting a shadow over Europe. Seems that the world economies are shifting to NIRP Era as the US's FED is distancing itself from the others. I won't be surprised if the FEDs apply a slight cut, but probably they will hold the current rates at a steady level for some time.