22 Jan 2015
A EUR 1.2trn ECB QE program would impress the financial markets - BTMU
FXStreet (Barcelona) - Derek Halpenny, European Head of Currency Strategy at the Bank of Tokyo Mitsubishi UFJ, notes that a QE program of EUR 1.2trn by the ECB would boost equities and weaken the euro further, with speculation going around that ECB is planning to implement a EUR 50bn per month program with uncertainty regarding the time-period of the purchases.
Key Quotes
"Not even news of a much larger QE program of potentially EUR 1.2trn, reported yesterday initially by the wall Street Journal, was enough for EUR/USD to test that intra-day low. On the face of it, a high bar is now in place for the markets to be impressed."
"To be fair, the failure of EUR/USD to break lower may have been due to uncertainties over elements of the story related to a possible program. The report mentioned a program of EUR 50bn per month but that it would be reassessed in a year – so do we call this a EUR 600bn plan or a EUR 1.2trn plan?"
"A big difference, and looks like a plausible way in which the ECB may try and sell to the markets a larger than expected total that crucially only gained agreement from Germany due to that key get-out-clause of possibly stopping at the half-way stage.”
“Certainly if the ECB commits to buying government debt for a full two-year period at a rate of EUR 50bn per month, the financial markets are likely to be impressed – a EUR 1.2trn program is much larger than consensus and would initially boost equities and weaken the euro further."
"The initial response is always more likely to be more linked to the size of the buying the bigger the amount is, with the finer details of the mechanics of implementing it and how the risks are shared coming afterwards."
Key Quotes
"Not even news of a much larger QE program of potentially EUR 1.2trn, reported yesterday initially by the wall Street Journal, was enough for EUR/USD to test that intra-day low. On the face of it, a high bar is now in place for the markets to be impressed."
"To be fair, the failure of EUR/USD to break lower may have been due to uncertainties over elements of the story related to a possible program. The report mentioned a program of EUR 50bn per month but that it would be reassessed in a year – so do we call this a EUR 600bn plan or a EUR 1.2trn plan?"
"A big difference, and looks like a plausible way in which the ECB may try and sell to the markets a larger than expected total that crucially only gained agreement from Germany due to that key get-out-clause of possibly stopping at the half-way stage.”
“Certainly if the ECB commits to buying government debt for a full two-year period at a rate of EUR 50bn per month, the financial markets are likely to be impressed – a EUR 1.2trn program is much larger than consensus and would initially boost equities and weaken the euro further."
"The initial response is always more likely to be more linked to the size of the buying the bigger the amount is, with the finer details of the mechanics of implementing it and how the risks are shared coming afterwards."