As with most things in Europe nothing is simple. The headlines earlier have moved the market but we’re still light on details. The rate cuts has caught many by surprise and the market is trying to work out the reason for it.
Adam summed up the confusion in the market last week and his post; ECB preview: Are ABS purchases QE? is well worth a read.
The ins and outs of QE and/or an ABS program may be fairly simple in single countries like the US and UK but Europe is a whole different kettle of fish as nothing is going to be ‘one size fits all’.
What they buy, who they buy, where they buy are all big questions that need answering and I’m not the best person to answer that in depth. In it’s simplest form it’s liquidity pumping and that should have the same effect on the currency and potentially stocks and bonds.
As I’ve just mentioned in the price post, this is either the ECB knowing that they don’t have time on their side in waiting to bring the TLTRO’s online and seeing their effects, or they are laying the ground work for QE/ABS by taking away the main parking spot for any new cash.
Rate cuts of such small increments show signs of desperation at these levels. If the cuts haven’t done anything to help the economy so far these will do nothing.
Trading wise I’m going to sit this out until the picture becomes clearer. Any time there is massive uncertainty in the market like this, it’s no time to start guessing.
We’re now down to 1.3023 as I type, just ahead of that fib on my previous chart. I’m unlikely to touch this pair unless it gets to my prefered target of 1.2750/1.28
