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05/06/2014: Draghi and the ECB’s monetary easing actions


So today, Mario Draghi has announced that the ECB will be engaging five measures to provide additional monetary policy action in an attempt to fight the prospect of deflation, low growth and the lack of liquidity. The ECB has gone further than the vast majority of the market (me included) had been expecting and the selling pressur eis again back on.

The ECB’s five actions:

  • Further reductions in the key ECB interest rate
  • Targeted longer-term refinancing operations (TLTRO)
  • A prolongation of fixed rare, full allotment tender procedures
  • An end to sterilization of the liquidity injected under the Securities Markets Programme
  • Preparation for outright purchases of asset backed securities

After for so long seemingly been behind the curve on deflation and a lack of growth, this really is a comprehensive attempt to rectify this. Talking about QE gives the ECB time and is effectively Draghi saying once again that they will “do whatever it takes”. It is likely to be well received in the coming days as it seems to be well thought out, with such measures as the targeted LTRO suggesting a deeper understanding rather than just a scatter-gun approach. It also bodes well for the format that QE will ultimately take.

Euro/Dollar has fallen sharply on the news. The rate is trading around 60 pips below just prior to the rates announcement, but it has bee as low as $1.3502.

Technically, there is key support at $1.3475 and the implied target from a 2 month top pattern is at $1.3375.

EURUSD   05062014


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