Why One Trader Thinks The ECB Is About To Send The Euro Sliding

Don’t assume the euro will rally when the ECB makes its expected "hawkish" announcement of QE taper plans, according to Bloomberg FX commentator Vassilis Karamanis. In fact, there’s an argument for the opposite occurring. Karamanis explains why the most anticipated move in the markets on Thursday may again be a fade.

Euro Bears May Get Their Chance When Draghi Speaks: Macro View


Policy makers have done a very good job communicating their plans since the idea of a taper first caught traders’ attention. The consensus case is now for the ECB to signal a nine-month extension to its asset-purchase program at a reduced pace of around 30 billion euros a month.


Unless Mario Draghi sounds hawkish (by not talking down the euro or by suggesting interest rates will rise soon after the end of QE), euro bears could take it as a signal to chase a move toward October lows.

The joint currency’s volatility skew shows traders are positioned for a hawkish announcement, but downside risks remain.


Higher-than-anticipated monthly purchases are expected by some analysts, while even a lower number -- mainly due to bond scarcity -- could be accompanied by a 12-month extension, pushing an interest-rate hike even further out the curve.


Policy makers have been clear that they don’t want any abrupt euro strengthening. And haven’t been shy about verbal intervention whenever it’s risen above $1.20.


They’ve succeeded. Realized volatility in the euro dropped to a three-year low, and EUR/USD has failed to hold above $1.20. Draghi may see few reasons to change this well- tested recipe.


Rather than signal the start of a fresh euro rally, a move toward $1.20 might actually offer a good opportunity to initiate shorts on a risk-reward basis.


The environment since mid-September has become more dollar- supportive and where euro goes next isn’t just an EU or ECB thing. Dollar technicals have now turned bullish, while developments in Washington are no longer weighing on the greenback.


That said, on a medium- to long-term perspective positioning for a stronger euro makes sense. The recovery of the euro area is solid and the ECB will eventually signal that interest rates can rise and that the currency at higher levels won’t damage the economy as much.


In the short-term, an ECB decision and rhetoric that stays in line with market expectations may be only negative for the common currency when knee-jerk moves are out of the way.


Ghordius Kefeer Tue, 10/24/2017 - 07:38 Permalink

what for, if I may ask?those "pesky" individual nation states are different, of different ages, and the whole modern concept of "Nation State", while only roughly 400 years old... is well entrenched, neverthelessthe "project" is still the same: to get them to pull in the same direction, instead of having conflicts of military nature among themselvesChina won't go away. quite the opposite, it's growing stronger and more assertive. the same for India. or the US, and so onhere, we have a bunch of small and medium-sized Nation States pooling - where it makes sense and is cheaper - resourcesas peers, note. with Four Freedoms for it's citizens and firms. in an environment that somehow managed to not strangle the small and medium businesses that are the real motor of any economy, and a decent regulatory environment that does not have the excesses that are more common elsewhereall wrapped in something that is being called "protectionistic" around it... while the EU as such is called a "champion of globalization" by otherswhich is increasingly funny, because it's China that took up the mantle of "champion of free trade", recentlynope. no need to change the formula. no appetite for changing the formula. ask the Visegrad Countries, and they'll tell you exactly that

In reply to by Kefeer

Fahq Yuhaad Tue, 10/24/2017 - 07:27 Permalink

The ECB could force the EUR exchange rate down, that is if they do not decide to force it up, or alternatively they could adopt an agressively neutral stance. 

Åristotle Tue, 10/24/2017 - 07:49 Permalink

MEFOBills: Logic speaks for itself:

Comparing lawnmowers or goats to a debt instrument is mixing things that are unrelated as if they are the same things. They are not. We are concerned with what is debt and what is money.

The lender who does not have an actual item of capital to lend such as a mower instead lends the borrower a currency which they can go out and purchase their own mower.

If the lender has the currency already in hand and the borrower returns the money plus interest then the lender has earned the interest on the money. What if the loan is not returned? No problem, the lender loses and that was the risk they took. Prudently, they ought to have taken this into account. What if the lender did not have the currency in their possession to begin with and instead created it at the time of the loan and the loan is not returned? What if this happens a thousand times over or a million times over as with fractional reserve systems during the housing crises? Is it prudent to lend what one does not have?

As for Aristotle, we look not to who says what but to what is being said. That is, we honor truth above our friends. We look to the fact not the person who claims the fact. In Nicomachean Ethics, Book V part five in which you cite him as claiming money comes from law, several sentences later in the same passage he contradicts himself and says it does not.

THUS, MONEY IS A MATTER OF JUSTICE FIRST. This is why it belongs in the discussion of Ethics and not Politics. Only afterwards when people implemented laws did money become subsumed into legality.

But no mistake:

wmbz Tue, 10/24/2017 - 07:51 Permalink

What?Mario is not going to say anything "Hawkish" that turd never has and never will. Anyone betting on that has a screw lose.

Ink Pusher Tue, 10/24/2017 - 16:27 Permalink

Italy and Spain are about to implode. One or the other or both signal the end of the EU's tenuous grasp and the demise of the ECB's monopoly play.