The fact that the EUR has broken the 3 October low of US$1.2501 is interesting, and stop losses have pushed the pair down to US$1.2437. The fact the EUR has also fallen relative to the JPY and GBP (despite growing concerns from Angela Merkel about the UK leaving the EU) highlights the fact traders are now expecting some sort of retaliation from the ECB at this Thursday's central bank meeting. This seems misguided to me, with the central bank firmly in wait-and-see mode, keen to see if the current slew of measures can boost inflation expectations. If anything, the ECB could make the current loans on offer (under its Targeted Longer-term Refinancing Operations or TLTRO) even cheaper and thus more compelling, while they could also signal a desire to buy corporate bonds in a bid to increase its balance sheet. Regardless, they should give us a more definitive hint around government bond purchases. EUR/USD shorts look good below US$1.2501 and the market is screaming out that we are seeing a game of 'who can be the easiest central bank around'. (VIEW LINK)



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Chris Weston

They will keep buying in the private space so (after CBs/ABS) corp bonds look the next step. Think ECB wait to see how this all plays out and will see QE only when the French reform, which could be some way off. Still if we get a strong hint (not my base case) then markets should rejoice and it was always the Feds desire to end QE and hope other CBs take over There are other banks buying JGB's for benchmarking purposes but apart from that I cant see anyone else touching them!

David Scutt

Good wrap, Westy. What would you deem to be the greatest moral hazard for the ECB? Purchasing sovereign or commercial debt? Either way it looks like they'll end up being a 'bad bank', either for the public or private sector. Still, given the BoJ are basically the market for longer-dated JGB debt, I can't see the market getting upset whichever way ECB step.