Euro Consolidates As ECB Ponders QE
The Euro is consolidating at the bottom of the current range as the 10-year December Bund future made two-week highs pushing yields to historic lows. In light of the disappointing participation in the initial TLTRO offering, there is more talk that a full-blown quantitative easing program is necessary.
These could include bank bonds, corporate bonds and multilateral bonds. Additionally, given the lack of demand for lending by banks with the TLRTO, the ECB could begin lending directly to businesses.
The second phase of the TLTROs begins in March 2015. The borrowings then are predicated on the expansion of the banks’ loan books. The money supply and credit data the ECB will report on September 25 will be closely studied. The ECB’s data suggests that credit conditions are easing, and demand is improving for some types of loans.
The SNB did not follow the ECB on the path of further policy accommodation, despite the fact that the ECB’s additional easing measures meant renewed upward pressure on the Swiss Franc. However, the statement signaled that the SNB stands ready to implement negative interest rates even outside of its quarterly policy reviews, if necessary. A further deterioration in the Eurozone’s and ultimately Switzerland’s growth outlook and a move at the ECB towards broad based asset purchases could therefore trigger an immediate reaction from the SNB on the rate front.
The technical picture still reflects a downtrend and the EURUSD has been unable to break through the 10-day moving average with gusto. Momentum has flattened as the MACD (moving average convergence divergence) index printed near the zero index level. The RSI (relative strength index) is printing a reading of 31, just above the 30 oversold trigger levels.
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