Euro Head Fake, Bounces Only to Sell-Off on Draghi

ECB's Draghi failed to provide much fresh insight into implementation of its asset purchase program.   The details will be posted on the ECB's web site later.  

The more important information comes from the ECB's new forecasts.  CPI this year is now expected to be zero, which implies more price pressures beginning later this year.  CPI next year has been tweaked higher to 1.5% and 1.8% in 2017.  The 2017 forecast has been introduced for the first time, and suggests the ECB's mandate will be achieved by the end of that year.  

Growth forecasts were lifted.  This year's growth is projected to be 1.5% up from 1.0% anticipated at the end of last year.  Next year's growth was raised to 1.9% from 1.5% and 2.1% in 2017. 

Draghi recognized that there has been some improvement in the financial conditions and sentiment, and gives some credit to the ECB's monetary policy decision.   The bond buying program that will be launched next week is expected to support and reinforce these favorable developments.  

Draghi has confirmed that the Eurosystem can buy negative yielding instruments up to the deposit rate which sits at -20 bp.    Germany's 2-year yield incidentally is trading at -21 bp now. 

Overall, Draghi seemed considerably more confident in his manner and comments.  He played down concerns we expressed about challenges to implement the bond buying.  However, he did seem to implicitly recognize the challenge by citing the fact that half of the eurozone bonds are owned by outside investors.   

The euro has fallen to new lows after a short-squeeze lifted it to about $1.1140.  Buying materialized ahead of $1.10.  The euro also fell to new 8-year lows against sterling

Euro Head Fake, Bounces Only to Sell-Off on Draghi Euro Head Fake, Bounces Only to Sell-Off on Draghi Reviewed by Marc Chandler on March 05, 2015 Rating: 5
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