Yesterday when a "source" released a rumor about a possible -0.1% European deposite rate, we had a quick assessment.
30-60 minutes until ECB sources denies everything
— zerohedge (@zerohedge) November 20, 2013 [3]
We were a little off on the timing, but once again spot on in principle, and moments ago Mario Draghi just said that negative rates were discussed in the last policy meeting and there was no news since then, that a rate cut has raised "some concers" and that certainly one should not infer negative rates. In other words, just like in May speculation is one thing, enactment of NIRP - something totally different. And just like that our other assessment of yesterday's "leak" was also confirmed:
This is what is called a "rumor-based" market test
— zerohedge (@zerohedge) November 20, 2013 [4]
And so now the ECB knows that the most it can get out of the EUR on a NIRP rumor is about 100-150 pips.
Finally, as we observed in "An ECB Negative Deposit Rate? Don't Hold Your Breath, Says Citi [5]", this is just what Citi also warned. Some of Draghi's other comments:
- DRAGHI SAYS DON'T TRY TO INFER NEGATIVE DEPOSIT RATES
- DRAGHI SAYS HE IS AWARE RATE CUT HAS RAISED SOME CONCERNS
- DRAGHI SAYS ONE CONCERN IS EFFECT OF RATE CUT ON SOME COUNTRIES
- RATE CUT WAS AMID SUSTAINED DOWNWARD DRIFT IN INFLATION
- DRAGHI SAYS GRADUAL DISINFLATION HAS BEEN BROAD BASED
- DRAGHI: EURO AREA MAY HAVE PROLONGED PERIOD OF LOW INFLATION
- DRAGHI: RATE CUT WASN'T BECAUSE ECB SEES DEFLATION RISK
As expected, the EUR pairs surge. Which means we are back to using the "ECB does QE" rumor as the default "forward daily guidance" on the EURUSD and EURJPY closing price.
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