It would appear that 1.39 EURUSD is the line in the sand for Mario Draghi. As pressures build on European competitiveness, Draghi appears to have finally got sick of China buying EURs to diversify its FX reserves away from USDs. This time "whatever it takes" is to drag the EUR lower - on the back of suggestions that OMT 2.0 (new measures - double the effectiveness and just as non-existent) and guarding against deflation (not worried about inflation). The jawbone is working for now as EUR breaks down through 1.39.
China has been diversifying aggressively away from the US Dollar:
Via Bloomberg
Add China pushing the yuan lower and diversifying reserves away from dollar assets to the drivers behind the euro defying forecasts and rallying to a two-year high versus the U.S. currency, according to BNP Paribas SA.
[10]
The upper panel shows the 18-nation euro reaching the strongest level since October 2011 and the six-month average of changes in China’s foreign reserves touching the highest since June 2011, according to data compiled by Bloomberg. The lower panel shows the yuan, after strengthening the past four years to an all-time high, slumped by the most on record last month amid speculation the People’s Bank of China will allow greater volatility.
"China’s central bank is widely believed to have intervened heavily in February and this means markets will anticipate a period of the dollar selling versus the euro and other reserve currencies as these reserves are diversified,"
And so Draghi finally reached "Whatever it takes 2.0"...
- *DRAGHI: EURO GAINS 'INCREASINGLY RELEVANT' TO PRICE STABILITY
- ECB'S DRAGHI SAYS REAL INTEREST RATE SPREAD BETWEEN EURO ZONE AND REST OF WORLD WILL PROBABLY FALL, PUTTING DOWNWARD PRESSURE ON EXCHANGE RATE
- DRAGHI - ECB HAS BEEN PREPARING ADDITIONAL NON-STANDARD MEASURES TO GUARD AGAINST DEFLATION, STANDS READY TO TAKE FURTHER DECISIVE ACTION IF NEEDED
- *DRAGHI: TOO-LOW INFLATION NOW 'MORE RELEVANT' THAN TOO-HIGH
[11]
It would seem, given previous levels and actions, that Draghi has given the market a bogey of around 1.45 for the next round of QE
This comes as the "Deflation Club" in Europe doubles to 4 members:
Signs of deflation strengthened on the Eurozone periphery Wednesday, with four countries now registering annual declines in consumer prices.
Data around the edges of the single currency area showed that consumer prices fell by 0.1% in February in both Portugal and Slovakia compared with a year ago. The two countries join Greece and Cyprus, where price declines are already running at an annual pace of more than 1.0%.
Charts: Bloomberg