With four days to go until the end of 2012, it means that Europe can finally reveal its dirty underwear, and as it does at the end of every year, scramble to "window dress" its banks, who for one reason or another, suddenly find themselves needing gobs of liquidity - not USD-denominated liquidity, but domestic, EUR-based. So what do they do? They all, or at least those without direct access to FX markets and without assets to dispose of, engage in what is now a traditional year end surge in loans at the ECB's Marginal Lending Facility [2], whose punitive rate of 1.5% - a true outlier in this day and age of global ZIRP - makes borrowing from this facility truly a last resort option. And as the chart below shows, in the past few days, various European banks have come begging at the front door of the ECB's Frankfurt HQ and have demanded a whopping €16.3 billion, the highest amount in just about a year, going back to December 29, 2011.
[3]
What is interesting here is that this confirms, as we have been suggesting over the past several weeks, that the relentless push higher in the EUR virtually oblivious of global newsflow (which in turns correlates into a higher ES level) is nothing but more EUR repatriation by those banks who are not locked out of FX markets, and which don't have to pay an exorbitant fee to the ECB to procure much needed year-end Euros, and instead can go the foreign exchange route, sell USD assets, and repatriate the proceeds by selling USD and buying EUR.
Which also means that, just like last year after the surge in MLF loans going into 2012, the EUR too will proceed to slide, as the need for EUR goes de minimis, and everyone scrambles for the "safety" of the USD all over again.
And while on the path of the artifice that is the EURUSD rate, these 3 charts suggest the richness is unsustainable...
EUR vs Sov Risk...
[4]
EUR vs Swap-Spreads...
[5]
and comparing Fed and ECB balance sheets (implies a mere EUR300bn spend on OMT from the ECB - not enough to solve anything!)...
[6]