Yesterday’s Trading:
On Thursday Draghi made the headlines. No central bank governor shifts the price like he can. The ECB decision and Draghi’s speech shot volatility on the euro/dollar up 3%. The same happened on 3rdDecember, 2015 when the EUR/USD rose 450 points to 1.0980 after an ECB meeting.
Market volatility in December rose for the 9 minutes preceding the official ECB release. Before the outcome of the meeting was published, the Financial Times from its Twitter account announced that the ECB wouldn’t change its monetary policy. This spanner in the works caused an overreaction on part of the market, with the euro/dollar jumping 120 points to 1.0657. When it became clear that the ECB was to drop its rate for deposits and keep its interest rate as it was, the euro fell by 157 points to 1.0518.
Since market participants expected the ECB to extend its QE program and this was already factored into the price, everyone ended up rushing to close their short positions.
Yesterday saw the euro crumble by one and a half figures (150 points) in response to the ECB dropping three rates. The main interest rate was reduced by 0.05% to 0.00%, the marginal credit interest rate was reduced by 0.05% to 0.25% and the interest rate for deposits was reduced by 0.10% to -0.40%.
The ECB also decided to extend its asset purchasing program by 20 billion to 80 billion euros per month. They included corporate bonds from non-banking corporation with an investment level rating in their list of assets to be purchased.
The ECB undertook monetary policy measures to stimulate the economy and the euro/dollar rose by 396 points to 1.1217. Why? Because Draghi announced at his press conference that no more stimulus is required for the time being. If we translate this into trader language, it means: “We’ve already done everything we can, so don’t bother waiting for us to do anything else.”
Speculators took his words to mean that if the ECB doesn’t relax its monetary policy further, we can buy euro. Market participants didn’t pay attention to the US stats.
