Friday, May 4, 2012

ECB Meeting Review

Going into Thursday’s ECM Interest Rate Meeting, our thought were that no matter what the results of the meeting, it could have either a positive or negative effect on the Euro.  Our theory was that a rate cut, although it would probably lead to initial Euro weakness could be ultimately seen positively.  The idea being that Forex traders would prefer seeing the ECB being proactive.  On the other hand, if the ECB stayed pat, it could be seen as raising more doubts towards the EU’s financial crisis and lead to a weaker Euro, even though such interest rate news is usually currency bullish.

Overall, confusion did hit the Euro as Forex Traders continue to debate the outcome of the ECB Meeting.  On the surface, the ECB’s hawkish tone led to an initial EURUSD advancement, however, it has since faded as doubts linger whether the ECB is doing enough.

Other views on the topic:

Mark McCormick, G-10 currency strategist at Brown Brothers Harriman in New York:
While the euro initially rose after Draghi's comments, the "market reaction soon became muted because the ECB really did not change anything, and it was pretty much status quo," said "ECB action is still possible,"
"If the market thought easing was off the table, the euro would be stronger today, and as we head into a weekend that should have headline risk. With elections in France and Greece, few people want to go long the euro."
But the positive jobless news was also overshadowed by worries about deteriorating economic conditions in Europe and pessimism over what the European Central Bank can do to spur growth.
ECB president Mario Draghi offered little prospect that the bank would deliver more support for the struggling economies of the 17-country eurozone.
Instead, he is urging governments to agree to a growth strategy that would work alongside tough spending cuts.
Budget cuts and tax hikes, which have been introduced by eurozone governments to reduce debt, are now seen as hurting growth and some European governments are calling for policies to focus more on stimulating economic activity. Read More

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