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EUR Slides To 1.37 On ECB June Action Jawboning, Bundesbank Edition

Tyler Durden's picture




 

Just in case the EURUSD didn't price in enough of the possibility of a June ECB rate cut (because with even Goldman saying no, there is zero chance Draghi will engage in QE) disclosed last week when Mario Draghi broke the ECB's cardinal rule and gave a hint at what is coming next month, an hour ago the WSJ, citing a "person familiar" and we would add likely person who also happens to be short the EURUSD, helped double down on the end of forward guidance (since going forward market will expect action from the ECB instead of mere talk) by saying that the Bundesbank "is willing to back an array of stimulus measures from the European Central Bank next month, including a negative rate on bank deposits and purchases of packaged bank loans if needed to keep inflation from staying too low, a person familiar with the matter said."

The result: after the EURUSD was whacked earlier today on Germany's abysmal ZEW print, it dropped another 50 or so pips and at last check was flirting with the 1.3700 line.

As the WSJ adds:

This marks the clearest signal yet that the Bundesbank, which has for years been defined by its conservative opposition to the ECB's emergency measures to combat the euro zone's debt crisis, is fully engaged in the fight against super-low inflation in the euro zone using monetary policy tools.

 

The Bundesbank's stance could provide critical support for ECB President Mario Draghi, particularly in Germany, when the ECB meets next month to weigh interest-rate cuts and other stimulus measures. Mr. Draghi put financial markets on notice last week that additional easing was possible against a backdrop of weak annual inflation which, at 0.7% in the euro zone, is far below the ECB's target of just under 2% over the medium term.

So was this merely yet another targeted attempt by the ECB's apparatchiks to talk down the EURUSD, this time using a WSJ channel? It sure appears that way because moments ago follow up news from the Bundesbank hit, this time via its preferred media outlet Reuters, when a spokesman said it was "nothing new that the Bundesbank is looking at all available data" and generally talking down the WSJ angle. To wit:

  • BUNDESBANK SOURCES SAY IT IS NOT NEW THAT WE ARE READY WHEN NEEDED TO TAKE MONETARY POLICY ACTIO: RTRS
  • WE ARE LOOKING AT ALL THE RELEVANT DATA AND INFLATION FORECASTS FOR 2016 ARE IMPORTANT BUT NOT ONLY DECISIVE FIGURE

The result, a meager 10 pip bounce, which of course has to be considered in the context of the 50 pip drop when the "non-news" was reported.

Of course, what everyone is forgetting is that if jawboning manages to push the EURUSD down to 1.35-1.36, then the ECB will have zero incentive to actually act for one more month, and Draghi will do nothing, sending the EURUSD surging, thus repeating the entire process from the beginning, but at least French and German corporations will have a whopping 30 days in which to enjoy a modestly lower EUR-driven export boost. 

 

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Tue, 05/13/2014 - 07:37 | 4753949 Headbanger
Headbanger's picture

Yep, USDEUR bounced off support recently as with USDJPY

http://www.marketwatch.com/investing/currency/USDEUR/charts?symb=USDEUR&...

This has got to make US GDP go negative fast as out exports drop and cheaper imports rise.

Tue, 05/13/2014 - 07:32 | 4753951 negative rates
negative rates's picture

You could be blessed if you turn 50 in a month.

But then again knowing people the way I do, it could also be more of a curse.

Tue, 05/13/2014 - 08:34 | 4753954 oklaboy
oklaboy's picture

ohhhhhhhh all the way to 1.37? call me when it's 1.1

Tue, 05/13/2014 - 07:30 | 4753955 jubber
jubber's picture

With the DAX at an ATH and the CAC at a 6y high, how much higher do they need this Indexes to go? makes no sense, I could understand if both were in freefall...

Tue, 05/13/2014 - 07:35 | 4753963 fonzannoon
fonzannoon's picture

I think if they get an average of 15% or so out of the major indexes every year from now on that will sustain pensions and make sure the wealth effect trickles down from the 1% to the next 9% who are still hanging around. Everyone after that can get an obamafone and a coors lite and watch the ballgame through the bar window from their cardboard box on the street while they stfu.

Tue, 05/13/2014 - 08:33 | 4754057 NoDebt
NoDebt's picture

I believe that's correct.  Certainly, I've planned all my future spending over the next 10 years based upon the assumption of 15% CAGR in the S&P with no pull-backs.  So it damned we better be right or pension funds won't be the only ones in trouble.

Tue, 05/13/2014 - 07:41 | 4753973 max2205
max2205's picture

Send a trillion to Brussels and we are set to go

Tue, 05/13/2014 - 07:52 | 4753987 GetZeeGold
GetZeeGold's picture

 

 

....and then they buy our treasuries.

I was wondering where they got all that money.

Tue, 05/13/2014 - 08:01 | 4754004 buzzsaw99
buzzsaw99's picture

at least the eur isn't rigged against the usd like all the other currencies. [/sarc]

Tue, 05/13/2014 - 08:04 | 4754007 no1wonder
no1wonder's picture

Gazprom forwards to Ukraine $1.66bn proforma-invoice for June gas supplies

http://en.itar-tass.com/economy/731378

Today Gazprom has sent an official notification to Ukrainian national oil and gas company Naftogaz Ukrainy about switching to advance payment for gas supplies according to clause 5.8 of the 2009 contract.

Naftogaz Ukrainy’s overdue debt currently stands at $3.5bn

Tue, 05/13/2014 - 08:50 | 4754133 smoothie
smoothie's picture

So right now the euro is down against the pound. Can I expect it to drop further in the coming week?

Tue, 05/13/2014 - 08:52 | 4754135 Bernoulli
Bernoulli's picture

EURUSD is a funny measure (like almost all currency rates these days): How much of this in the long-term for sure useless paper crap money "x" would you pay to get a certain amount of that in the long-term for sure useless paper crap money "y"?

All these measures and charts just distract from the main goal:

Just take whatever paper money you have and buy physical gold and silver and hide it in nature somewhere and wait! The days will come where people will not accept paper as "value". Everybody here on ZH knows it. And bits and bytes will most certainly also not be accepted as value (sorry, bitcoin fans, I just can't imagine it! Why? Ok, so your online banking account currently displays a certain number and if there is a plus in front of that number, you can go to the bank and get all of the cash out after a certain waiting period maybe; however, after the "big one", you will go to your bank and they will say: sorry, dude, we will give you a 30% haircut. Or they will say: "bank is closed, we are planning to reopen in 2 weeks when the dust has settled" or they will say: "sorry guys, we were forced to perform a monetary reform over the weekend, we will now give you your NEW MONEY: 1 Million USD now corresponds to 1 FED Dollar"; and you are like "but hey, I had XYZ USD on that account last Friday, I printed out the online statement!!" then they will show you your NEW online statement from Monday and you will be very angry, but can't do anything! --> can you imagine that people will ever trust again what is written on some computer screen on some server somewhere in the world? I can't... You don't want a computer and internet and server and other people between you and your cash. No matter how safely encrypted the stuff might be).

So this time will come. Maybe in 1 year? 5 years? 10 years? Who cares?

But then, we will all be looking back at those days where a kilo of 999.9 was 30'000 EUR or 42'000 USD paper money and hate ourselves how stupid we were not to buy much more of the stuff....

 

Tue, 05/13/2014 - 10:42 | 4754611 smoothie
smoothie's picture

I have gold and silver, btc, long on all of them, although not a large reserve, which I intend to increase while I can and before prices increase.

My main reason for wanting the euro at this point is:

A. I trade it for btc.

B. I am taking my mum on holiday to Spain in two weeks, for her annual break, and I have to buy some euro. I know its typical western thinking but my mum needs her break or she goes mental... Lol

The question about my transacting in bitcoin is actually a little deeper, if there is a dip in the euro can I expect it to be instantly worth less against btc or could I expect a (short) delay where I have a buy opportunity. I looked at the btc chart this morning and it hasn't moved much, btc is actually worth less right now.

I do see your point about btc not being worth shit, worst case scenario. But oi expect things to continue to operate for some time at a collapse, tptb would need to maintain power etc as long as possible to stem panic, and to give them time to organise and dig in, I feel that during that period btc might be floated as an emergency means of exchange, although ultimately becoming worthless eventually, but In that transitional period I wouldn't want to have to instantly switch to a gold and  silver reserve for barter, I'd much rather transact in something that people will think is the new thing! And swap it for hard assets and proper barter!

Also if btc goes ballistic short term, I can convert that to cash, and trade for silver and gold, I have to actually increase my fiat first so I can buy gold, and short term I see btc as a winner, I don't have much money you see, and in order to buy gold, I need it!

Tue, 05/13/2014 - 12:28 | 4755314 Bemused Observer
Bemused Observer's picture

You don't necessarily have to buy gold retail...I buy mine at yard sales, etc, in the form of gold jewelry. With the prices down, people aren't careful, and you can get a nice 14k necklace for 50 cents if you're lucky. I go to dozens of sales on the weekend, and there is a LOT of gold out there to be had!

Also, gold jewelry comes in user-friendly "sizes", unlike coins and boullion. If things get tough, it might not be easy or possible to make change. A pocketful of gold rings, bracelets, etc, would be much better to have on hand for smaller everyday purchases.

Just stay out of NE PA/W NY...that's MY hunting ground...:-)

Tue, 05/13/2014 - 13:20 | 4755535 smoothie
smoothie's picture

That's a great tip man!

Thanks :-) 

Tue, 05/13/2014 - 15:34 | 4756092 Bemused Observer
Bemused Observer's picture

Yep, if you go on a regular basis, you'll be amazed at what you accumulate. A lot of folks just throw everything into a jewelry box that you either paw through, or just buy outright. And because older gold pieces may not BE marked, and European pieces have marks not familiar to most Americans, you can find some GREAT stuff in with the junk jewelry! Check one of the websites and get familiar with the marks...

Okay, I should stop, I tend to get really excited when talking about these sales...(I'm addicted...)

Treasure Hunt!!!

Tue, 05/13/2014 - 08:55 | 4754152 NoWayJose
NoWayJose's picture

Purchase of packaged bank loans - hey, how did that turn out for the US?

Tue, 05/13/2014 - 09:02 | 4754183 bubblemania
bubblemania's picture

Don't be fooled by this nonsense! As the FED continues to wind down QE, ECB will step in to take its place. I have 99% confidence that ECB will announce a QE program next month that will start in the summer when the FED bond buying hits the US$35B per month level. If QE isn't maintained across the western financial markets the system will start the spiral downward and the banksters aren't going to let that happen. Time to buy EU equities! Shorting EU Soverign bonds will be hazardeous in the foreseeable future. 

Tue, 05/13/2014 - 09:11 | 4754219 ...out of space
...out of space's picture

is it today or  it was yesterday that DB left the LBMA gold fix?

Tue, 05/13/2014 - 09:18 | 4754239 Youri Carma
Youri Carma's picture

WSJ: "This marks the clearest signal yet that the Bundesbank, which has for years been defined by its conservative opposition to the ECB's emergency measures to combat the euro zone's debt crisis, is fully engaged in the fight against super-low inflation in the euro zone using monetary policy tools."

No it isn't. Of course negative interest rates will come but that is not what is meant by 'will Germany cross the Rubicon'. What is meant by that is that the EU/Germany will print money to buy up government bonds etc. like the US does.

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