Euro Turmoils After ECB Walks Back Draghi Jackson Hole Appearance

Just yesterday morning, we said that with the Euro rising as much as it has in recent months (or is that the dollar tumbling), the ECB's next move could - or should - be to talk down the common currency, instead of carrying the hawkish "bias" Draghi has pushed for the past half year, culminating with the Sintra mini tantrum in which the poor central banker was "misunderstood" by markets. Well, just 24 hours later that's precisely what happened when this morning the EUR turmoiled, first tumbling then regaining all losses after Reuters "trial ballooned" that the much anticipated Draghi presentation at the Fed's Jackson Hole conference in just over a week, where he was widely expected to unveil the ECB's taper, would be a "nothingburger" to use the parlance of our times, and "will not deliver a new policy message" according to two Reuters sources familiar with the situation said, tempering expectations for the bank to start charting the course out of stimulus.

Perhaps having finally seen how high the EURUSD has risen, an ECB spokesman told Reuters that Draghi "will focus on the theme of the symposium, fostering a dynamic global economy, in his Aug. 25 remarks, while the sources added that he was keen to hold off on the policy discussion until the autumn, as agreed at the last rate-setting meeting in July. "

Well, so much for the narrative set by the WSJ one month ago, which set expectations that Draghi's Jackson Hole address would frontrun the central bank's tapering blueprint.

Expectations for the speech had been building in recent weeks with investors pointing to next Friday's event as the likely kick off in the ECB's debate how to recalibrate monetary policy given solid growth, rapidly falling unemployment but persistently weak underlying inflation. 


In 2014, the last time Draghi spoke at Jackson Hole, considered the world's top central banking get-together, he laid the foundations for the ECB's quantitative easing scheme, also fuelling expectations for a major speech this year.


"Expectations that this will be a big monetary policy speech are wrong," one of the sources said.

As Reuters further adds, another source said while the speech was initially seen as an ideal slot for a major address, "Draghi told rate setters at the last policy meeting that he would honour the Governing Council's decision to hold off on the discussion until the autumn."

And in the most amusing twist, Reuters "reports" that Draghi "may have decided to skip the Jackson Hole opportunity as markets interpreted his speech at a similar conference in Sintra, Portugal very differently than the ECB hoped, sending markets on a rollercoaster and instilling an added sense of caution at the bank."

Draghi then hoped to strike a balanced tone but noted that better growth would provide increased support to the economy, letting the ECB claw back its own stimulus to keep the overall level of accommodation broadly unchanged.  That was seen as a hawkish message, paving the way to reducing and then ending asset purchases.

Uhm, what markets? The one where the ECB now owns 14% of Europe's corporate bond market and 40% of Eurozone GDP in the form of public debt? That's the market that Draghi is complaining about? Or is that the market where the ECB buy billions in Apple stock every quarter.

So if not Jackson Hole then when?

Policymakers speaking to Reuters on condition of anonymity earlier said that October is the likely date for the most substantial decision given the incoming data schedule, particularly on wages.

The ECB's big dilemma is that while the euro zone economy has grown for 17th straight quarters and employment is rising faster than expected, wage growth remains anaemic, keeping a lid on consumer prices.


Economists are now trying to figure out whether wages are showing an unexpectedly delayed response or whether wage setting dynamics may have fundamentally changed in the post-crisis, globalised economy.

Following the report, the Euro whipsawed with the EUR/USD rising as much as 0.2% to 1.1758 as BBDXY erased its gains, only to reverse course and slide as low as 1.1692 as cable also dropped, although as Bloomberg then adds, a mix of leveraged and interbank names were seen on the bid in EUR/USD, most likely the ECB once again intervening indirectly in the market it so loudly complains about.