FX Take : ECB Done, BOJ Next – Nothing is ever good enough
I am not sure if this is what forward guidance means but the price action of EURUSD after the ECB was another classic.
From what was supposed to be a currency negative story from every single aspect, the EUR rallied back hard, blind siding the entire market, who were herded into the event, all singing the same anthem.
ECB Meeting Takeaways
1. Cut main refinancing rate to 0.15%
2. Cut deposit rate to -0.10% which applies to banks’ average reserve holdings in excess of the minimum requirements
3. Cut marginal lending rate to 0.4%
4. New series of 4 year LTRO (Long Term Refinancing Operations) to allow banks to borrow up to 7% of total amount of loans to Eurozone non-financial private sector (excl mortgages)
5. Termination of weekly SMP (Securities Market Program) purchases = injection of liquidity
6. Potential purchases of ABS (Asset Back Securities) = QE
That is an overwhelming lot indeed that is way above what the market was realistically anticipating.
And I am amazed that I got it almost right for once (no need to applaud).
“If June will repeat May’s script, I expect we will see EUR/USD break 1.35 later on today before the rate decision and then probably rebound back as if nothing happened just to keep volatility at zero.”https://tradehaven.net/market/fx/thoughts-on-the-ecb-tonight-remember-last-month/
You see, perhaps it is not just a currency story – it is a Abenomics story.
That EUR will weaken as a result of the cuts but EZ asset prices will explode in the process. And with the market heavily loaded up on speculative shorts and with the stop loss algorithms out on a hunt, there was only 1 direction to go for the aftermath. UP, UP, against all odds.
It is like every single BOJ meeting in 2013, going in on high hopes and nothing they ever said was ever good enough for expectations even if ECB did really over deliver this time.
In the coming weeks, we will see the EUR drift back to where it should belong – DOWN BELOW. But the damage has been wrought and just like last month, traders will miss the boat because they have been marooned.
Thus my eyes are swinging over to the USDJPY and the BOJ next Friday with their minutes out on 18 May.
Will we see the same script ?