As The ECB's Balance Sheet Hits A New Record High, Fair EURUSD Value Is 900 Pips Lower

Tyler Durden's picture

Hours ago, in addition to making Cypriot sovereign bonds no longer eligible as collateral at the ECB, the European Central Bank also announced something that received less attention, namely that its balance sheet rose by €31 billion in the past week (due to an increase in the MRO) to a new all time record high of €3.058 trillion. In other words, even as the Fed's balance sheet continues to be flat, or is even modestly declining, the ECB continues to pick up the monetary slack with all new fiat ending up to benefit the US capital markets.

Now as frequent readers know, this latest shift in the relative size of the two critical CB balance sheets also means something else: that the fair value of the EURUSD implied purely on balance sheet correlation, a relationship that historically worked perfectly, yet in recent months has broken down due to the market's conviction that more QE is coming any minute now, is now just above 1.16, or just shy of 900 pips lower from here.

In other words, if the Fed is content with doing nothing else, and forces the ECB to do all the unsterilized intervention going forward, the EURUSD has no choice but to go much lower. On the other hand, the fact that it still refuses to do so, is confirmation that the market expects much more from the Fed - roughly $400 billion based on the above correlation. So much so, that as observed a few weeks ago, the second the news breaks of more LSAP, the EURUSD is likely to soar by at least 400 pips, and that ignore the near record amount of shorts still embedded in the EURUSD position.

Place your bets.

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King_of_simpletons's picture

More bank job cuts:


"The game's up. There's no transactions, M&A isn't happening, this is what deleveraging looks like. It's a decade of austerity and that makes people feel more unlucky," he said.


"Investment banks are going to struggle. There's not going to be mass lending going on. The leverage game is over and people can't accept it. Volumes are declining en masse and their headcounts are too high."

slaughterer's picture

Draghi, your balance sheet is an atrocity, you are a traitor to the Bundesrepublik, therefore you are fucking fired.  Go back to Monti-land, you douche-faced leech.  

machineh's picture

A 3-trillion-euro ECB balance sheet is like a D-cup boob job: it's supposed to look sexy, but ends up being disfiguring.

Bunga-bunga, bItCHeZ.

Mark Carney's picture

OT:  There is no Gold bubble.

Made the mistake of going to my Scotiabank Branch to order some Maples (ScotiaMccota is Canada’s largest Bank dealer) and it was quite the sight to see.

First off they had no idea how to process it because THEY NEVER DO IT! 


Me    “I would like to buy some Gold Maples”

Teller 1   “Sure, HOW MUCH GOLD WOULD YOU LIKE?!?” she seriously yelled it out.

Then the whole crew gathers around to see how to do the transaction.

Teller 2  “Sarah, HOW DO WE BUY GOLD?!?!” again, clueless #2 yells it out

Then the manager finally came to help out and said this was only the second time  she has had to purchase for a customer.  Then she asks me “so, is gold at a good price?” I said “yes, its always a good price, just buy it.”


I was a little on edge with how freely they were yelling out what I was buying.  Never again, I will buy on line from now on.

Village Smithy's picture

Wouldn't it have been easier for you to just pick some up at the Mint on your way home from work Mr. Carney?

Alpo for Granny's picture

Dude you have to ask for some "tradition" or tell her "Your name is Conan". She will understand then...

ptoemmes's picture

Anecdotal story....recently had to tell SunTrust Bank to go pound sand after 5+ weeks of making us (our family business) shit through a straw to get a - secured - line of credit.

We could self finance, probably should, and probably will, but the point is - no surprise to ZHers - despite Oblama, Tiny Tim, and Chopper Ben banks are not lending (to small businesses).  

Granted I am but one data point, but I know of others.

I think it's a blessing in disguise...though in my case I MUST replace some cap equipment - it's not expansion per se.





NotApplicable's picture

With the marginal utility of debt now well below zero, they are fully aware there is no such thing as productive lending at these rates when they're already too exposed to both all of their own bad loans, as well as those of their counter-parties.

In other words, they cannot afford to take the risk as they to retain all of the unencumbered reserves they can keep a hold on. Even if your loan was zero risk, they still can't afford to decrease the size of their buffer.

Banks get margin calls too. Which makes me wonder, who got stuck holding the Cypriot paper when the music stopped just now?

Winston Churchill's picture


Know ? a good leasing co. with plenty of capital if your interested

Seize Mars's picture


As for myself, I am a capitalist, thanks anyway. Also I avoid doing business with people who have a hard time with the whole "you're/your" thing. Similar case with the whole "loose/lose" thing.

Seize Mars's picture

What a joke.

Especially when you know there *is no money* and there *is no "loan committee"*

And this is secured? Ass-hats.


Dan Conway's picture

Unless your business has at least $500 million of sales and very profitable (and really doesn't need the money), it is just a circle jerk exercise.  The banks are tripping over each other to throw money at their favorite leveraged deals taking some equity risk at L+250.  But the poor small business owner that needs a couple hundred thousand can go pound sand even if they have collateral and be willing to pay higher rates.  Do you think this has anything to do with this non-recovery recovery?

buzzsaw99's picture

They think volumes are declining because of deleveraging? This is bullshit. The defaults are taking place on the taxpayer's books aka the agencies. Volumes are down because there is no capitalism anymore and everyone knows it. You reap what you sow aholz.

Cognitive Dissonance's picture

I love the term Central Bank "Balance Sheet" if printed-out-of-nothing bullshit and liabilities somehow offset each other to balance out. Too freaking funny.

Only in the land of Central Bank Oz can this make any sense. Welcome to the Trojan Horse money meme.

francis_sawyer's picture

I kno right?... Sometimes I wonder how many TBTF executives, knowing what they know, basically are 'squatters' on high leveraged property or real estate... I guess it's fucking what I would do if I happened to not have a conscience and instead be a useless sociopath...

brooklynlou's picture

Central Bank "Balance Sheet"? Just pages and pages of ....


All work an no play makes Jack a dull boy
All work an no play makes Jack adult boy
All work an no p lay makes Jack a dull boy
All work a no play makes Jack a dull boy
All work an no play make Jack a dull boy
All work an no play makes Jack dull boy
All work an no play makes Jack a dull bo

battle axe's picture

Euro at par? Sooner then you think, Maybe sub par. 

Marginal Call's picture

Oh no.  We need the Euro in the 1.25 to 1.30 range.  We'll defend our position with paper just like them. 

Ghordius's picture

Remember what was happening at 1.20? Ugly. But as Tyler wrote, make your bets...

hedgeless_horseman's picture



You can pick your friends currency, and you can pick your nose price, but you can no longer pick your friend's nose stocks.

Wags's picture

Don't worry CNBC Lead Cheerleader Cramer will talk about what an opportunity to buy

RichardENixon's picture

I watch him for all the button pushing and wacky noises.

geewhiz190's picture

swiss intervention in the euro has a limit, i would guess. whenever that limit is reached the euro will lose that support

FeralSerf's picture

It seems the Swiss, unlike the Germans, will need to monetize the ECB's debt since they guaranteed they would maintain the peg no matter what.

Ghordius's picture

it is not a peg, it's a floor. watch China, this can go forever. or at least it can give the impression of.

Come on, guys, how do you think that all those CBs accumulated FX Reserves? Predominantly in USD?

That is, all except one...

FeralSerf's picture

Sorry, I knew that.  It is, in effect, a peg though since there's not to many reasons why the franc would decrease in value compared to the euro.

The dollar, as I recall, became the world's reserve currency along with the pound I think (and gold) in  the 1920s due to there not being enough gold and America and the Empire being the last CBs left with any reserves.  A central bank could use dollar reserves to back its currency and to settle accounts just like it could use gold.  This came about, I think, without the concurrence of the Americans.

kraschenbern's picture

Tyler; thanks.  Wish I could learn more, faster, on what you post.  Would it be possible for you to insert some "clear text" for a small investor to understand the take away action items on your observations?  I'm guessing such an item here would be foreign exchange bet (EUR/USD exchange going down)???

0z's picture

Or up (Short squeeze). Ben decides!

BlandJoe24's picture

He's saying that from what he can tell it (EURUSD) could go either up (with big Fed  QE) or down (if no Fed action). To repeat: it could either go up or down. So there you go.

I learned the hard way to either not trade at all, or to hedge my trades, in case things go a different way than I thought, which happens all the time.

Also, the "actionables" one could take away from Tyler's often incredibly insightful posts sometimes bear fruit (for which i'm grateful), and sometimes they don't.  Usually it's the important timing issue:  insight is right, but timing is wrong, so trade loses.  The market is WAY more irrational than i ever expected.  And also, remember you're betting in a "house" and the house has rigged the game...


kraschenbern's picture

To:  BlandJoe24   Thanks Joe.  So:  Still wanting (hypothetically) to make a bet I need to insert some politics.  Please bear with me.

The FED/ECB chart show a RHS gap which, by implication, will presumably close in the future by either:  (1) EUR/USD decreasing OR (2) FED/ECB increasing (or maybe a little of both).  If a binary choice is required, which is the most likely?

I would argue that the most likely shift (political reason) is EUR/USD decreasing.  Reason:  End game objective on both sides of the pond has to be maximizing political stability, which is heavily dependent on low unemployment.  The European countries seem to either have way high unemployment (Southern) or little inclination to subsidize (Northern) their poorer neighbors.  And it's not in the interest of the CBs to let their loans go up in smoke.  So help keep the peace by:  increasing European labor's share of global consumption by reducing the value of the EURO, i.e., EUR/USD decreases; at the same time keep nominal European wages flat.

ACTION ITEM???:  Buy puts on the EUR/USD at $1.20???

TIMING???:   3 Months???

Jason T's picture

OT: over at LaRouche ..

's being reported that the figure for the bail-out of Cyprus is estimated in the 10 bn. Euro range. Let's put that in perspective, shall we?

According to the CIA factbook, the estimated population of Cyprus is 1,138,071, so that works out to roughly 8786.79 Euro per person. Alternatively, 10 bn Euro is well over half of the estimated GDP, which is reportedly 17.3 billion Euro.


The land area of Cyprus is estimated, again by the CIA factbook, to be 9,241 sq km, or about 3568 sq miles. There are around 27,878,400 square feet per mile. Dividing this into 10,000,000,000, we get a figure of 358.70 Euro per square foot, to cover every square foot of territory of the Republic of Cyprus.

If you were to print that in U.S. Dollars at the current rate, and spread it evenly, this bail-out would cover every square foot of the land area of Cyprus with about $447 each.

...Glass-Steagall, anyone?

Marginal Call's picture

Well, we spent 700 billion to bail out the financial district in Manhattan.  So $450/sf for Club Med island real estate sounds like a bargain. 

Fourth Horseman of the Apocalypse's picture

That is what happens when you allow new forms of collateral.  



NotApplicable's picture

Hey now, those IOUs are enforcable. They got guns!

Besides, it's just the ECB and the Fed taking turns at buying up all the crap, via one proxy or another.

I'm waiting to see how the IMF plays into all of this in the form of a "final solution." They've been waaaaaaay to quiet so far.

Everybodys All American's picture

Now why on earth would the Fed do any more QE knowing alot more harm can be done by doing so. The US dollar's reserve currency status is already at risk. The US AAA credit by other ratings agencies would also come under further downside risk. Bernanke is not exactly brilliant but he he is not a complete moron either. I think if the imbalance is in the market expecting more QE the market has it wrong especially at these market levels. The FOMC could not have been more clear at their last meeting.

NotApplicable's picture

Risk? There's no risk, just ask Geithner.

What there is, is a controlled demolition that has absolutely no risk of failing to detonate.

dracos_ghost's picture

And now for something completely different:(Stockton,CA about to be the largest bankruptcy in the US)

That damn Facebook gambit didn't pay off I guess.

milanitaly's picture

I see that this site and their follower are happy everytime Merkel says "NO"

First of all there are people, then Countries and gold.

Tyler, with respect, you should think about this too, as history is a great teacher. This is a war without guns but can give the same consequence on world population, notonly for Greek, Italian and Spanish people. USA and Great Britain should know it




Village Smithy's picture

Most people on this site do not want bad things to happen to anyone. We are just of the opinion that the damage has already been done and that the current efforts, if you can call them that, by central banks are just making the situation worse. In other words New Orleans is flooded, get the water out and get on with the clean up. Maybe we should start calling Bernanke "Brownie" because he's "doing a heck of a job".

Gief Gold Plox's picture

While I understand and respect where you're coming from, I for one would like to see the system changed, violently if necessary, and those who blindly perpetuate it for their own greed, enjoyment and whatnot trialled, convicted, all assets and possessions reclaimed and imprisoned. Starting with, lets say, Corzine will be just fine. If bad things should happen to him while resisting arrest, I can live with that.

Ted Baker's picture


Bastiat009's picture

Oh, Europe and the euro are in trouble. I was wondering why gold was falling again. Now I know. And don't forget to buy stocks in companies that produce nothing and make no money.

slaughterer's picture

... like Amazon, "profit is for pussies"

OhOh's picture

I wonder if Putin will revise his position on Syria. Cyprus is the Russian financial gateway.

nobusiness's picture

Nothing matter out of Europe for the next 3 days.  Wall street is paid a fee of 1% to 3% of assets under management.  they have 3 days to maximize their take home pay for the end of Q2.  It is very expensive to have a Hamptons home so the market ramp up will be in full swing by tomorrow if it has not started already.

chirobliss's picture

Yup, already started. Squeeze, squeeze, squeeze on rumours and abysmal volume.

SmoothCoolSmoke's picture

Yeah.  And the SCOTUS will help the party soon.

SmoothCoolSmoke's picture

SP pump job continues - 1323.  Un-freaking believable.