It was shaping up like the perfect overnight ramp following yesterday's Goldilocks election result... and then Mario Draghi opened his mouth.
- DRAGHI SAYS DEBT CRISIS STARTING TO HURT GERMAN ECONOMY
- DRAGHI SAYS GERMAN RATES LOWER THAN THEY WOULD BE OTHERWISE
- DRAGHI: CRISIS MAKING GERMAN INTEREST RATES VERY LOW
- DRAGHI SAYS ECB'S OMT IS NOT DISGUISED FINANCING OF GOVERNMENTS - correct: it is quite overt
End result, after surging to nearly 1.29 last night, the EURUSD plunged in minutes, and just hit 1.275, the lowest in over two months. Of course, to our readers, none of this is surprising. Recall this tweet from October 24:
EURUSD has now forgotten Germany is in recession, soars on continued Greek lies
— zerohedge (@zerohedge) October 24, 2012
And so finally, after months and months of explaining the fundamental dichotomy in Europe (see here), it is finally becoming transparent. And it is as follow:
Germany, which is the economic dynamo of Europe, needs a weaker EURUSD to keep its export economy running. Period, end of Story. The problem is that the lower the EURUSD, the greater the implied and perceived EUR redenomination risk, which in turns send the periphery reeling, and will force first Spain, and then everyone else to eventually demand (not request) a bailout.Which is just the way Germany likes it, which in turn is as was said here 5 months ago.
4 months ago: "it's in Germany's interest to keep Europe weak, EURUSD low, and periphery on the edge of insolvency" zerohedge.com/news/euro-bail…
— zerohedge (@zerohedge) October 21, 2012
Because in a closed loop, Magic Money Trees simply don't exist.
Check to Draghi.