If you were waiting for a bounce in risk assets, it’s here.
Draghi made some nice comments but policymakers are so often guilty of overestimating their power. In March/April, everyone in Europe was patting themselves on the back after the LTROs, including Draghi.
Three months later and Draghi is forced to back into his bag of tricks. Believe me it won’t be enough.
Why? Because fundamentals matter. Greece is a failed state. Spanish housing/banking is collapsing and Italy is in debt up to its ears.
The ECB has limited powers and a mandate. Banks don’t want to lend and no one is going to build a factory in Spain to bring down the 25% unemployment. Growth will be weak.
Shorting the euro is a great way to take advantage of slow growth but the waters are choppy and EUR has fallen badly since May.
A better way might to sell cable. The UK just had the worst GDP report since 2009 and 36 hours later the pound is up 200 pips.
The June/July highs, the 200-dma and the 50% retracement of the May fall all converge around 1.5800.
