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 [6], 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.
[7]
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.