ECB Rate Announcement and Press Conference - No big moves

This Thursday afternoon on February 9th 2012 the Interest Rates Announcment was made by the ECB. They were not expected to raise rates this time and did not. The ECB's mandate is price stability and although lowering rates might help the liquidity problems caused by the Debt Crisis, the LTRO in December 2011 has helped that. There is another LTRO in February. The only thing that could have surprised the market is if Mario Draghi had announced a longer term LTRO.

In the midst of all this the negotiations in Greece continue, with the PSI (Private Sector Involvement) negotiations on a bond haircut as well as Greece agreeing to more austerity to receive the next tranche of AID from the Troika. The Rates came out at 12:45 GMT (7:45 EST) and Draghi began his press conference at 13:30 GMT (8:30 EST). About 15 minutes before it started there was an headline that some Greek officials had said a deal was done. Later in the day some other Dutch and Germans officials said this was not the case. Anyhow the EURUSD shot up. It then just whipped around in its range as he spoke. There was nothing particularly market moving in what he said, which basically was to wait for the the EuroZone meeting of politicians. He didn't want to say anything about any losses the ECB might take on its Greek bond holdings.

Here is a summary of some of his comments:

Draghi: Stabilization of economic activity at low level

-Activity subdued
-Inflation to fall below 2% after staying above for several months
-Downside risks remain
-Will continue to support financial sector via LTRO
-LTRO has eased collateral availability
-Low interest rates and LTRO lending support to economy
-Stresses in financial markets have diminished

Draghi: No comment on Greek bonds/EFSF
-Says Greek PM tells him Greek deal reached

Draghi: New collateral rules more risky
-Will have to be managed; over collateralized

Draghi would not answer questions on Greek bonds...losses, surrendering profits etc.

Draghi: Survey and hard data point to economic stabilization at low levels
-When asked on removal of word “substantial” to downside risks
-Experts say demand for second LTRO should be around the same as the first (EUR 490 bln)
-Haircuts of about 2/3rds on new collateral
-ECB to avoid “legal tricks”: Will not share Greek losses, Talk unfounded
-Will not give money to Greek program, would violate monetary financing
-A well-functioning financial system does not need non-standard measures, they are temporary in
nature
-Euro area “as a whole” in better budget shape than US or Japan

Draghi: ECB not a party to PSI but hear agreement near
-Will discuss in Eurogroup
-Has nothing to say on Greek bonds other than will not violate ECB Treaty
-Selling Greek bonds to EFSF would be monetary financing if ECB books a loss

Drgahi: Fiscal Compact a major event
-Governments give up partial sovereignty on budgets
-A sign of commitment to the euro; makes euro a strong reality
-A first step toward fiscal union
-In union, each country would be responsible and strong
-A Plan B on Greece means defeat; no comment on ECB holding of Greek debt

No trade off between interest rate changes, LTRO: Draghi
-Two different things, address two different problems
-On Japanese interventions, should be done in mulch-lateral framework, not unilateral
-Irish government should be praised for reform progress
-“Greece is unique in everything”
-No stigma on use of LTRO facilities
-If ECB give money to EFSF, that is monetary financing; if it gives part of its profit to governments (EFSF) that is not monetary financing (got it? )

anyway lots of talk, nothing exciting...loads of banker talk, nothing for the traders.

Here is the 1 minute chart during the talking:

ECB Rate Announcement and Press Conference - Pullback and Blast higher for short squeeze

This morning at 12:45 GMT (7:45 EST) the ECB made their Interest Rate Announcment followed by ECB's Mario Draghi's Press Conference 45 minutes later at 13:30 GMT (8:30 EST). Out of the 53 analysts surveyed by Bloomberg only 6 expected a further cut of 25 basis points today, the rest expected the ECB to keep rates steady. Since they cut at their last meeting and there have been a few signs that things have improved and about 2-3 hours before the Rate announcement there were very successful Bond Auctions for Spain and Italy. Click here for another article from Reuters.

So basically the EURUSD had been rallying since these bond auctions anyhow, but after the release the pair did retrace some and actually the US Retail Sales did come out just as Mario Draghi was about to release the ECB statement. Here is a 10 second chart of the price action on the EURUSD after the No Change rate figures was released thru the wires, the EURUSD was basically at its highs for the day when it came out, but it was a no change as expected, and the fact that 6 analysts expected a cut was not enough to push the pair up when the decision no to cut was made by the ECB. Basically the ECB has a little breathing room with the recent LTRO bonds and today's successful Italian and Spanish auctions:

We can see from the 1 minute chart below the Yellow Arrow is the release of the Rates then the Red Arrow is when the US Retail Sales number hit. It was a poor reading the EURUSD also sold off along with all risky assets...then there was some chop as the Daily Central pivot was tested at 1.2724 before it rallied thru Draghis Speech and the Q&A session which followed. Here are links to the Text of the Speech: ECB's Draghi Speech Text Part 1 and Part II, a Summary of Draghi's Statements, Summary of the Q&A session, Another Summary, More from MNI Link 1 Link 2 Link 3 Yes that's alot of stuff to read...the chart is alot more simple and straight-forward!!! 8)

ECB Cuts Rates 25 bps to 1.0% as expected then announce Bond Buy and GDP forecast cut

54 out of 58 analysts surveyed by Bloomberg expected the ECB to cut rates today by 0.25% or 25 basis points. 2 analysts expect them to hold rates steady at 1.25% and another 2-3* expected a bigger cut of 0.5% or 50 basis points (bps) to 0.75%

Some expected the EURUSD might sell off on this news, but the cut was highly expected and had been already priced into the market as we had already seen the EURUSD sell off from 1.3430 to 1.3380 before the rate announcement. So actually the EURUSD rallied on the announcment up 40 pips to 1.3320 into the 8:30am EST ECB Press Conference which saw the announcement of 2 further Bond Buying programs and we see the EURUSD then did rally into the 1.3340-50 area.

After this ECB then cut their GDP forcasts and the EURUSD sold off over 100 pips to 1.3310-15.

* Bloomberg reported 2 but talking-forex write said 3