Currencies: "EUR Surges, Bund Yields Tumble As Draghi Sends Conflicting Messages"
From ZeroHedge:
After a kneejerk move lower in the Euro, tumbling briefly as low as
1.1930 when Mario Draghi made two explicit references to the strength of
the Eur in his prepared remarks, stating that "the recent volatility in the exchange rate represents a source of uncertainty which
requires monitoring with regard to its possible implications for the
medium-term outlook for price stability", the EURUSD has since surged
more than 100 pips, and was up to 1.2050, nearing the 2017 high of
1.2070 during the Q&A part of today's press conference which has
been dubbed "pretty agreeable" by several sellside desks, even as the
yield on the 10Y Bund has tumbled with Draghi suggested that no
discussing of tapering has taken place yet, indicating QE will likely
remain unchanged for longer than even the skeptics imagined.
Ironically, in a comment by Danske Bank analyst Jens Peter Sorensen
released shortly after the ECB announcement, the strategist said that
“If [the ECB] had removed the part of scaling up, then the euro would
have become stronger, and he is trying to avoid that,” Sorensen says
adding that "the ECB is trying to kill volatility in the markets." So far the ECB has abjectly failed to do that.
Commenting on Draghi's remarks, ABN Amro's Nick Kounis summarizes the
speech (in short) as follows: 1, More concern about euro strength 2. QE
re-calibration in the fall (Oct) 3. 2019 inflation a little lower
Elsewhere, in Draghi's speech there have been no explicit mentions of
links between the currency and QE decision, with Draghi taking a
patient approach on inflation, saying it will eventually converge.
Still, while the EUR has interpreted Draghi's speech as hawkish,
while the bond market and Stoxx 600 see it as delightfully dovish, FX
strategists note that Draghi will have to make express hawkish signals,
i.e., a mention of the taper, for the currency to move above 1.21....MORE
Delightfully.
