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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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At Hantec Markets Ltd we provide an execution only service. Any opinions expressed by analyst Richard Perry should not be construed as investment advice or an investment recommendation. This report does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. Forex and CFDs are leveraged products which can result in losses greater than your initial deposit. Therefore you should only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved, seeking independent advice if necessary prior to entering into such transactions.